Feature

What the experts say

Don’t dump Europe; Reinventing the index fund; A tropical retirement

Don’t dump EuropeThe current European debt crisis is no reason to abandon funds that invest on the Continent, said Michael Pollock and Karen Damato in The Wall Street Journal. The euro’s 16 percent decline against the greenback has pummeled European stocks, but in the long run a weak euro could “bolster” European exports—which would be good news for many European companies. Besides, most U.S. investors need more international exposure: They tend to favor stocks of U.S. companies, even though these account for “less than half the global market capitalization.” If you feel you must head for the exits, do so incrementally: Timing the market is always risky, but adding currency swings to the mix can make things truly scary.

Reinventing the index fundRob Arnott is “one of the most important figures working in the investment world today,” said Shawn Tully in Fortune. The founder of Research Affiliates advocates a strategy he calls “fundamental indexing.” Most index funds hold stock in proportion to the relative values of the companies’ market capitalizations; Arnott allocates his investments by also taking account of sales, cash flow, book value, and dividends. This approach tends to eschew expensive stocks in favor of “value”—and it seems to work. Over the past five years, Arnott’s flagship index, FTSE RAFI US 1000, has beaten the Standard & Poor’s 500 by 2.4 percentage points annually. “Arnott hasn’t just beaten his competitors—he’s thrashed them.”

A tropical retirementSome adventurous retirees are living the “dulce vida” south of the border, thanks to a lower cost of living, said Laura Cohn in Kiplinger’s Personal Finance. Mexico and Costa Rica are popular destinations, but Panama has also been attracting expats. Not only does the country use the U.S. dollar, its “generous pensionado program” offers qualified American retirees discounts on everything from utilities and doctor bills to airline tickets and cultural events. (The program is open to individuals who collect at least $1,000 a month from a pension or Social Security.) Of course, retiring outside the U.S. has its share of hassles, including language barriers, logistical hoops, and daily culture shocks. “Make no mistake: You won’t be in Kansas anymore.”

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