When it comes to making our money grow, the year ahead offers many challenges. Low interest rates will continue to vex savers and fixed-income investors in 2013, while struggling economies in Europe and the US threaten to keep stock markets volatile.
Bottom Line/Personal asked eight top experts for their favorite strategies to protect your finances and help you build profits in the new year…
Invest in a short-term “junk bond” fund. There are few bargains among low-risk government and corporate bonds in the US. To get relatively high yields, you may want to invest in a fund that focuses on corporate bonds that have relatively low credit ratings—so-called junk bonds. But to avoid too much risk, choose a fund that invests in only short-term junk bonds. That way, if interest rates jump, the prices of those bonds and the fund that holds them will not suffer too much. Currently, funds that keep the maturities of bonds they own to less than five years still can offer yields in the 4%-to-5% range.
My favorite now: Pimco 0-5 Year High Yield Corporate Bond ETF (HYS) is an exchange-traded fund with an average maturity of 2.9 years and a recent yield of 5%.
Buy emerging-market bonds. I recommended the same asset class to Bottom Line/Personal readers for 2012, and it returned nearly 19% over the past year. Government bonds of countries such as Indonesia, Peru and the Philippines offer much better yields than bonds of developed nations such as the US. Although investors think of emerging-market nations as risky, many have little debt and much faster growth than developed countries.
Example of emerging-market bond fund: Pimco Emerging Local Bond Fund (PLBDX) invests in emerging-market debt securities denominated in local currencies. Recent yield: 4%. Three-year annualized performance: 7.6%.
Invest in 10-year Treasury notes if and when their yield rises above 2%…and look to reduce exposure when rates dip below 1.5%. That is the likely range for these ultrasafe investments in 2013. Following these guidelines will give you a good chance of buying at a relatively high yield and selling for a relatively attractive price. Despite painfully low interest rates, 10-year Treasuries still make sense for very conservative investors if the Treasuries are held to maturity, considering how volatile many other investments are.
For savings, put money in an Internet bank. Intense competition for customers among online banks has driven up some nonpromotional annual percentage yields (APYs) as high as 1.05%—which is about as well as you can do without locking up the money for long periods or meeting stringent requirements.
Most attractive online money-market accounts yielding 1.05%: IncredibleBank, with no minimum balance requirement and a maximum of $249,999.99…MyBankingDirect, $5,000 minimum…and SallieMaeBank, no minimum.
BETTER STOCK RETURNS
Invest in mutual funds focused on companies that can thrive even in a slow-growing economy. Next year’s expected growth rate of 2% to 2.5% in the US economy will keep us out of recession but do little to improve the unemployment rate, make consumers feel flush or boost stocks that depend on a strong economy. On the other hand, large growth-oriented companies, some of which don’t need a booming economy to do well, still are relatively undervalued. I especially like next-generation technology companies that will have accelerating growth for many years.
My favorite fund now: Artisan Global Opportunities Fund (ARTRX) owns many multinational companies based in the US and keeps more than one-third of its holdings in technology companies. It ranks in the top 1% of its category over the past three years. Three-year annualized performance: 14%.
Invest in a mutual fund that allows you to stay in the stock market through volatile periods without losing sleep.
My favorite now: Ironclad Managed Risk Fund (IRONX), launched in 2010, tracks the Standard & Poor’s 500 stock index while selling stock options that serve as somewhat of an insurance policy against losses in the index. For instance, in the third quarter of 2011, the fund dropped 3.6%, compared with a drop of 14% for the S&P 500. Annualized performance since October 2010: 9.4%, compared with 9.6% for the S&P 500.
BETTER CONSUMER DEALS
Take advantage of attractive credit card balance-transfer offers now to save money. If you have a credit score of 700 or higher, the best offers allow you to transfer balances ranging from $5,000 to $15,000 to a new credit card with no transfer fees (a potential savings of up to $750)…no interest on the amount that you transfer for six to 18 months…and no interest on new purchases for six to 18 months. Some of the best offers now are from Discover, Chase and Citibank. You can scan current offers at www.CardRatings.com.
Take advantage of the best car-leasing deals in a decade. Monthly lease payments have dropped sharply for many car models because their resale values have jumped, meaning that dealers are happy to get the cars back at the end of the leases so that they can sell them at high used-car prices. Reason for the high resale values: Short supplies of used cars, partly because of destruction caused by Hurricane Sandy and partly because of slow new-car sales and owners holding on to their cars longer in recent years.
Example: A 36-month lease on a 2013 Chevrolet Cruze, with $2,328 down, costs $179 a month, down from $250 a month a few years ago for a similar lease.