Making money: What the experts say

Wall Street lingo to ignore

Investors are better off disregarding a few “impressive-sounding” Wall Street terms, said Jack Hough in The Wall Street Journal. The term “beta,” for instance, which denotes a measure of stock volatility often used to quantify risk, “has flaws.” Higher beta stocks are more volatile, and are said to offer higher potential returns. But since beta is “backward-looking,” it doesn’t really capture a stock’s present and future potential—or its pitfalls. If you want to spot safe stocks, you’re better off studying financial statements. Similarly, Wall Streeters often talk about “correlation” between two stocks; the lower it is, the thinking goes, the better one will do when the other suffers. “But correlation is like a car’s air bag that works except during collisions”: During the 2008 meltdown, “risky assets fell in unison.” Just aim for old-fashioned diversity. Hold companies that offer things people need, like electricity, with others that offer things people merely want, like luxury goods.

Plunging off the fiscal cliff

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Nearly 90 percent of Americans will see their tax bills rise next year by an average of $3,500 per household if Congress does nothing about the fiscal cliff, said Lori Montgomery in The Washington Post. The nonpartisan Tax Policy Center concluded that middle-income households earning between $40,000 and $65,000 a year would see their taxes go up by an average of $2,000, while the top 1 percent of earners would have to stomach an average tax hike of $120,000. Much of the tax bite will come from the expiration of tax cuts enacted by President Bush and the end of the payroll tax holiday. Congress could still extend both measures, but the clock is ticking.

A slice of the natural gas boom

Many investors are looking for smart ways to capitalize on the shale gas revolution, said Ali Velshi in Money. But the volatile commodities futures market is probably “too speculative a place to play” for most. A safer strategy is to look for “beneficiaries of a gas boom,” like utilities, pipeline manufacturers, and industrial companies that rely on gas. Energy expert Stephen Leeb recommends the FBR Gas Utility Index Investors Fund, which has a five-year annualized return of 8.7 percent and a 2.4 percent dividend. The fund is heavy on pipeline firms, which are insulated from the low price of gas since they benefit from rising demand.