The big risk of overseas bets
Beware of putting too many financial eggs in one country, said J. Alex Tarquinio in SmartMoney. Exchange-traded funds focused on the stocks of just one foreign market have grown increasingly popular with investors; there are now 73 single-country funds, nearly double the tally from two years ago. But the investments can have a serious downside: Very few protect against movements in the local currency. That can “clobber a U.S. investor’s returns, especially when a currency drops in value against the dollar.” Taiwan’s economy, for example, grew an average of 4.2 percent a year between 2000 and 2010, but its stock market “barely budged” in U.S. dollar terms. Brazil’s economy grew 3.1 percent last year, while Brazil-focused ETFs were down 19.5 percent. Since it’s hard to predict when countries will be affected, the best way to avoid trouble is to invest in several single country ETFs or in funds focused on a whole region.
Profiting on private equity
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Mitt Romney’s presidential run has put a spotlight on private equity, said Simeon Hyman in Bloomberg.com. But can ordinary investors get access to the industry’s lucrative payoffs? The barriers to direct entry are extraordinarily high, with minimums in the millions of dollars for formal partnerships. Even investing through a wealth-management company requires a minimum of $500,000. But “for investors who don’t want to commit six figures,” there are funds, such as Powershares Global Listed Private Equity Portfolio, as well as publicly traded firms like Blackstone Group. Expect volatility: For the five years ending in September 2011, the S&P Listed Private Equity Index lost 10 percent of its value. On the flip side, it has “gained 160 percent—double the S&P 500’s performance”—since the market bottomed in March 2009.
Taking control of your 401(k)
The beginning of a new year is a great time for a 401(k) tune-up, said Brett Arends in The Wall Street Journal. Many people are too busy or intimidated to choose their own portfolios, but that often means money is in funds that “aren’t designed for your best interests but for the best interests of your plan provider.” Retake control. You should ditch any high-fee mutual funds, which are generally “far too mediocre” to justify their costs. And look overseas for cheap buying opportunities. “Investors sell themselves short by investing too much in the USA.”
