What the experts say

Stock repurchasing; Closed-end funds; Big demand for small houses

Not all buybacks a ‘buy’

An equity typically jumps 3 percent to 6 percent when the company announces it’s repurchasing stock, said Jason Zweig in The Wall Street Journal. “Done right, buybacks are a boon” for both the corporation and the investor: They increase earnings per share and, unlike dividends, don’t stick shareholders with a tax bill. “Above all, share repurchases prevent cash from burning a hole in management’s pocket,” which often can lead to stupid investments outside the core business. “Unfortunately, firms don’t always buy stock back when it is cheap.” That can put companies into a serious bind. In 2006 and 2007, for example, Washington Mutual, Wachovia, and Citigroup spent billions on stock repurchases. But “in April 2008, all three banks were so capital-starved that they had to raise cash by selling shares for a fraction of what they had recently paid for them.” Just because a company thinks its stock is a “buy” doesn’t mean that you should necessarily agree.

Closed-end fund clearance

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Unlike traditional mutual funds, so-called closed-end funds trade on exchanges, said Conrad De Aenlle in The New York Times. Depending on market fluctuations, they may sell for a premium or discount to the funds’ underlying portfolios, and recently these funds have been trading at pretty deep discounts. “Closed-end fund investors tend to overreact to good and bad news,” says financial planner Thomas J. Herzfeld, who recommends looking for closed-end funds trading at a discount relative to other funds with the same investment objective. Bargains or not, closed-end funds aren’t without pitfalls. One strike against them: Fund companies make the same fees “regardless of the value of the funds,” says Benjamin A. Tobias, a financial planner in Plantation, Fla. “I want to align compensation with performance.”

Does downsizing pay off?

After spending decades “hankering” for big, expensive homes, baby boomers are downsizing in droves, said Carla Fried in Money. According to a 2006 survey by market researcher Hanley Wood, more than half of affluent boomers plan to move to a smaller house in the next 10 to 15 years. “Therein lies a big fat problem.” Given the demand for small houses and condominiums­—even in this market—you could end up paying more for a quaint cottage or downtown condo than for your current abode. “The devil is in the downsizing details: You need to crunch the numbers to calculate your net savings.” Weigh everything from mortgage costs and monthly maintenance to car insurance and gasoline. Even if downsizing does pencil out, “don’t plop down earnest money” until your McMansion has been successfully sold.

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