What the experts say

Bank stocks no longer a bargain

Bank stocks have made a miraculous recovery in recent months, said Elizabeth Ody in Kiplinger’s Personal Finance. On average, they’re up more than 130 percent since early March, and investors are no longer expecting the “worst-case scenario” of failure or nationalization. That’s great news if you jumped into the sector during its darkest hour, but the days of “easy money” are already over. Even if long-term prospects look good, it could take “years” for bank earnings to justify today’s prices, and most banks still have plenty of bad loans on their books. Investors with an appetite for financials should stay away from “plain-vanilla” banks for now. Instead, look to investment banks such as Goldman Sachs and Morgan Stanley.

Prepaid plans in peril

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At one time, prepaid college-savings plans looked like a pretty good deal for parents, said Sean Hamill in The New York Times. Such plans—the predecessors of today’s more popular 529 savings plans—promised to lock in the price of college tuition within a plan’s home state. But a combination of stock losses and tuition increases has put all but two of the nation’s 18 prepaid plans “into the red, jeopardizing those pledges.” Some states have tried to solve this problem by closing the plan to new enrollees; others want to “impose new and higher fees that could amount to thousands of dollars a year in additional costs to parents.” Still, parents who’ve put money into these plans could yet come out ahead. “If I get back the return they promised, it will be a good investment,” says Ganesh Seshadri, a father of three who has invested $200,000 in Pennsylvania’s prepaid program, “because all of my other investments tanked.”

Hedging your mortgage

Would-be home buyers can currently find offers for 30-year mortgage rates as low as 5 percent, but “it’s almost impossible” to lock in such a rate while house hunting, said Brett Arends in The Wall Street Journal. One slightly daring way to hedge against rising mortgage rates would be to buy shares in an exchange-traded fund that bets against Treasury prices. “If mortgage rates start rocketing again in the next few months, a rebound in long-term Treasury yields will likely be the cause.” On the other hand, if yields fall, you’ll lose money. To limit your downside risk, consider buying call options instead. For $1.20 per share, you can buy a $50 call ­option on the ProShares UltraShort 20+ Year Treasury fund. If rates were to “skyrocket” and the fund’s price went to $60, “you’d pocket” $8.80 a share. But if rates were to fall, you’d be out only $1.20 a share.