What the experts say

Hedge fund blues

“The shine has come off the hedge fund industry,” said Brett Arends in SmartMoney. You’d think turbulent times would be golden for these freewheeling investment vehicles, which can make bets forbidden to vanilla funds. But research firm eVestment Alliance says that two thirds of the hedge-fund-style mutual funds on its database five years ago have since dropped off, because they either folded or are doing so poorly that managers don’t want their numbers posted. The median hedge fund among the survivors posted a gain of 104 percent over the last 10 years—less than the 119 percent return of a low-cost mutual fund portfolio that “even Grandma could afford.” Some big-money hedge funds do beat the market, but the sector is “mostly a snow job.”

Credit card myths

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Many people are only hurting their credit ratings by heeding bad advice on credit card management, said Martha C. White in Time.com. They are under the misconception, for instance, that unused cards “are a liability to their credit score, so they close them.” That’s a mistake. What credit raters look for is your “credit utilization ratio,” or how much of your available credit you have “the financial discipline not to exploit.” You earn high marks by keeping an account open and using it just enough to show you know it’s there. There’s no truth, either, in an opposing myth: that carrying a balance “is a good thing to do in terms of one’s credit history.” That only “costs you money every month in the form of interest on those borrowed dollars.” Better to keep the balance as close to zero as possible.

Watch your munis

Municipal bonds, long considered safe investments, “actually go bad much more than we thought,” said Karen Weise in Businessweek.com. But spotting the bad ones takes some work, since many bonds aren’t graded by the two big rating agencies, Moody’s and Standard & Poor’s. In examining muni defaults, researchers at the Federal Reserve Bank of New York included unrated bonds and found 2,521 defaults from 1970 to 2011—35 times more than in those tracked by Moody’s. More than a quarter of the bad debt arose from “so-called industrial development bonds” sold to finance specific projects. Another red flag is debt meant to be repaid by revenue from nursing homes, housing, and hospitals.