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Saturday, 31 December 2011


After many ups and downs, stocks end flat for 2011

NEW YORK (AP) -- The stock market ended a tumultuous year right where it started.

In the final tally, despite big climbs and falls, unexpected blows and surprising triumphs, all the hullabaloo proved for naught. On Friday, the Standard & Poor's 500 index closed at 1,257.60. That's exactly 0.04 point below where it started the year.

"If you fell asleep January 1 and woke up today, you'd think nothing had happened," says Jack Ablin, chief investment officer of Harris Private Bank. "But it's been up and down all year. It's been crazy."

It was a year when U.S. companies were supposed to run out of ways to make big profits. But they didn't, and in fact generated more than ever. It was a year when the U.S. lost its prized triple-A credit rating, which should have spooked buyers of its bonds. Instead investors bought more of them and made Treasurys one of the best bets of 2011. It was a year when stocks caught fire, then collapsed to near bear-market lows.

Among stocks, there were some surprising winners. Scaredy-cat investors who bought the most conservative and dullest of stocks — utilities — gained 15 percent this year, the biggest price rise of the ten industry sectors in the S&P 500. Other winning groups were consumer staples, up 11 percent, and health care companies, 10 percent.

Other market curiosities:

— Bad year, great quarter. Despite disappointing returns in 2011, the last three months of the year were impressive, which could bode well for the new year. The S&P 500 rose 11 percent. The Dow Jones industrial average, comprising 30 big stocks, climbed 1,344 points, or 12 percent. That was the largest quarterly point gain in its history. The Dow closed up 5.5 percent for the year.

— Best of the bad. U.S. stocks delivered little this year, but other markets did even worse, including ones in fast-growing economies. Brazil's Bovespa index fell 18 percent in 2011. Hong Kong's Hang Seng dropped 20 percent. In Europe, many of the biggest markets ended down in 2011. Britain's FTSE 100 lost 5.6 percent, Germany's DAX 14.7 percent.

— Buy American is back. A broad index of the Treasury market gained 9.6 percent, despite the fact that the U.S. government is now slightly less likely to repay its debt, at least according to Standard & Poor's. In August, the rating agency stripped the U.S. of its triple-A rating, citing mounting U.S. debt and political squabbling over what to do about it.

For stock investors, 2011 wasn't supposed to end this way.

At the start of the year, the Great Recession was officially 1½ years behind us and the recovery was finally gaining momentum. The economy added an average of more than 200,000 jobs a month in February, March and April. And U.S. companies kept reporting big jumps in profits, defying naysayers.

The stock market roared in approval. On April 29, the S&P closed at 1,363, double its recessionary low of March 2009.

Then manufacturing slowed, companies stopped hiring and consumer confidence plummeted, taking with it those hopes of big stock gains for the year. Adding to the misery, Japan was rocked by an earthquake and tsunami. That shut down factories run by crucial parts suppliers to U.S. firms, in particular auto makers.

Gridlock in Washington didn't help. After much squabbling, politicians eventually decided to raise the cap on how much the federal government can borrow in early August. But the heated debate took its toll. The Dow Jones industrial average swung more than 400 points four days in a row — down and up and down and up.

Overhanging it all was fear that the debt crisis in Greece had spread to Italy and Spain, countries too large for other European nations to bail out.

Talk of another blockbuster year for stocks turned to dark musings about the possibility of another U.S. recession. And so stocks kept falling. On Oct. 3, stocks had dropped 19 percent from their April high. That was just one point short of an official bear market.

Since then, U.S. housing starts have increased, factories are producing more, unemployment claims fell and U.S. economic growth rose. And companies are still generating impressive profits. Those in the S&P 500 have increased profits by double-digits percentages for nine quarters in a row.

The good news pushed stocks up in the closing months of the year.

The biggest winner in the Dow was McDonald's Corp, up 31 percent for the year. Bank of America Corp. was the worst performing stock, down 58 percent.

Including dividends, the S&P 500 returned 2.11 percent for 2011. That means investors lost money after inflation, which was running at 3.4 percent in the 12 months ending in November. At least they're getting more than investors in the benchmark 10-year Treasury note, which currently pays a yield of just 1.88 percent.

The outlook for stocks in the new year is either great or grim, depending on your focus.

Italy has to repay holders of $172 billion worth of it national bonds in the first three months of 2012. It will do so by selling new bonds. The question is how much interest they will demand to be paid to compensate for the risk they're taking on. If they demand too much, fear could spread that the country will default. That could sink stocks.

After Italy was forced to pay unexpectedly high rates in a bond auction earlier this month, stocks fell hard around the world.

There are also questions about whether China's economy is slowing too much and whether the U.S. politicians will agree to raise the debt ceiling again in 2012 or extend Bush-era tax cuts.

On the bright side, stocks seem to be well-priced.

The S&P 500 is trading at 12 times its expected earnings per share for 2012 versus a more typical 15 times. In other words, they appear cheaper now. Partly based on that many strategists, stock analysts and economists expect the index to end next year at 1,400 or more, up 10 percent or so.

The Standard & Poor's 500 index rose 5.42 points, or 0.4 percent on Friday. The Dow Jones industrial average lost 69.48 points, or 0.6 percent, to 12,217.60. The Nasdaq composite index fell 8.59 points, or 0.3 percent, to 2,605.15 The Nasdaq is down 1.8 percent for the year.

Trading has been quiet this week with many investors away on vacation. Volume on the New York Stock Exchange has been about half of its daily average. Markets will be closed Monday in observance of New Year's Day.

Stern Advice: Financial Predictions for 2012

By Linda Stern

(Reuters) - Sigh. A lot of people are predicting more of the same for 2012: Another year of stock market volatility, high unemployment, banking industry upheaval, weak housing and more talk about Facebook, mobile commerce, 401(k) plans and taxes.

But maybe that's just because it's hard to envision change. Not everything will stay the same. For example, a year from now, we'll not be having weekly Republican presidential debates, and we will most likely know who the President will be in 2013. Conventional wisdom holds that by this time next year, Facebook will be a publicly traded company and not just a huge time suck.

It's easier to imagine the European economic situation getting better or worse in 2012 than it is to imagine it lurching along as it has been for a whole other year. And federal financial regulators who have spent a year threatening to increase their oversight of mortgage lenders, financial advisers and 401(k) plans may stop talking and start doing.

What does all that mean for your wallet? Here are some financial predictions for 2012.

-- You may play with your money more. Banks and other financial companies don't have much in the way of interest rates to offer, so they're turning their services into games to win and keep customers. Like every other kind of company, they're investing more in social networking. So expect more game-like random rewards and Facebook-hyped deals from the financial industry, says Philip Blank of Javelin Strategy & Research.

For example, one new company called SaveUp runs a sweepstakes-type game for bank customers, who earn the right to "play" when they save money or pay down debt. The rewards vary from coffee pots and gift cards to a grand prize of $2 million.

-- You'll be courted, but you'll pay more for bank convenience. Bank of America may have backed away from its $5 per month debit card fee in the face of consumer wrath. But the big banks will have no choice but to charge for services that don't make money for them. At the same time they'll be fighting off competitive pressures from community banks and credit unions. Writes Mark Schwanhausser of Javelin, "2012 is shaping up as a year in which...(financial institutions)... fight to retain and steal customers - with a central focus on the tradeoffs of fees vs convenience."

-- Safety stocks may not be the safest. Recovery stocks may recover. Staid dividend-payers have already been bid up, and the consumer essentials, like toilet paper and toothpaste, may give way to recovery type companies, suggests Sam Stovall, chief equity strategist for Standard & Poor's. "We recommend overweighting the consumer discretionary sector on the lessening of recessionary pressures in the U.S. as well as above-market EPS growth prospects, and favorable technicals." S&P and MFS Investment Management (among others) are also recommending technology stocks for 2012.

-- You'll charge more, and debit less. Issuers will up their credit card rewards to pull users away from less profitable debit cards, says Ken Lin of CreditKarma, a credit scoring and comparison site. As consumers move out of full-recession mentality and shop more, they'll find themselves reaching for credit cards more, he says.

-- Housing may bottom. Real estate pros believe we have at least six more months of falling - or flat - home prices, but they are increasingly predicting that 2012 may be the year in which home prices stabilize. That's the word from HomeGain, Zillow, Credit Suisse and other market analysts. That doesn't mean there will be a new race to the top or a frothy sellers market anytime soon, just that the blood may be stanched.

-- You'll be studying your 401(k) more carefully. Beginning in May 2012, employers will have to show workers much more information about the fees they pay for their plans. Expect new investment alternatives and more focus on fees.

-- Cheaper investment advice will grow in availability and popularity. Just about everyone needs help figuring out how to invest for retirement, and there's a cadre of relatively new companies that has figured out they can do that with software. By focusing on balanced portfolios of stocks and bonds, index mutual funds, and ultra-low fees, they are aiming for mainstream middle-class investors. The latest savvy? Online advice firm Hedgeable is offering free financial advice. Flesh and blood advisers can be expected to respond with hourly fees and lower cost approaches.

-- Taxes will be somewhat predictable. Most of the individual income tax provisions run through 2012, and no students of Washington politics expects big tax legislation before the Presidential election. As for what you'll be paying and deducting in 2013? That's wide open and probably will be a year from now, too.

-- Prices may rise. Predicting inflation is always tricky, but investors are now buying Treasury inflation protected securities (TIPS) at negative yields. That's because they believe inflation will take off, boosting the adjustable rates on those bonds. Other bonds could suffer if prices and rates rise, of course. But most financial savants were predicting that last year too, and 2011 was a very good year for bond buyers. The take-away? The future is un-knowable. Diversify and wait.

(The Personal Finance column appears weekly, and at additional times as warranted.; Editing by Gunna Dickson)

12 Retirement Resolutions for 2012

By Emily Brandon

There are some new developments that could help you save more for retirement in 2012, including a higher 401(k) contribution limit and better access to 401(k) fee information. Of course, your ability to save and invest will largely determine your retirement success. If you're aiming to improve your finances in the new year, try to incorporate a few of these tips into your retirement plan. Here are 12 ways to get better prepared for retirement in 2012.

Save $500 more next year. Consider resetting the automatic contribution to your 401(k) to include an extra $42 per month. The contribution limit for 401(k)s, 403(b)s, and the federal government's Thrift Savings Plan will increase by $500 in 2012, to $17,000. And workers age 50 and older will be able to contribute an extra $5,500 next year. "Always allocate a percentage to your retirement account from your paycheck before you spend, even if it is a tiny amount," says Elaine King, a certified financial planner and managing director of wealth planning at Lubitz Financial Group in Miami. "It is the discipline that counts."

Get a 401(k) match. If you're unable to completely max out your 401(k), aim to at least save enough to capture any 401(k) contribution match your employer offers. For example, if you earn $50,000 and your company offers a match equal to 3 percent of pay, your nest egg could get an extra $1,500 boost.

Maximize tax breaks for retirement saving. There are a variety of tax breaks for retirement savers. You can defer taxes on up to $17,000 in a 401(k) and $5,000 in an IRA in 2012. Those limits jump to $22,500 in a 401(k) and $6,000 in an IRA if you are 50 or older. Low-income savers whose modified adjusted gross incomes are less than $28,750 for singles, $43,125 for heads of household, and $57,500 for married couples may also be able to claim the Saver's Credit, which is worth up to $1,000 for singles and $2,000 for couples.

Put some of your savings in a Roth. Consider allocating some of your retirement savings to a Roth 401(k) or Roth IRA account, especially if you're young or in a low tax bracket. While you won't get an immediate tax break, Roth accounts give you easier access to your money before retirement and more withdrawal flexibility in retirement. The $100,000 income limit for converting a traditional 401(k) or IRA to a Roth was eliminated in 2010, which means almost anyone can allocate some of their retirement savings to a Roth account in 2012.

Scrutinize 401(k) fees. Those with 401(k)s will have access to more information about the costs and fees deducted from their accounts, thanks to a 2010 Labor Department regulation that goes into effect in 2012. Pay close attention to mailings from your 401(k) plan next year and use this information to minimize the fees you pay. "You'll be receiving a new type of quarterly account statement from your plan sponsor that details the actual dollar amounts charged against your account and mutual fund choices," says Mark Miller, a Reuters retirement columnist and author of The Hard Times Guide to Retirement Security. "The easiest way to determine if you're paying too much is by making an apples-to-apples comparison between a passive index fund in your plan -- say, an S&P 500 fund -- with the same fund offered elsewhere. If your plan's fund charges 75 basis points, but you could buy the same thing in an IRA for seven basis points, ask your employer why--nicely."

Avoid penalties during rollovers. If you roll money over from a 401(k) to another retirement account this year, make sure to avoid fees and penalties. The best way to do this is to have your former employer transfer the money directly to an IRA or your new employer's retirement plan. If you have the check made out to you, 20 percent of your account balance will be withheld for income tax and you could be charged taxes and penalties if you don't meet the 60-day deadline for depositing the money in a new account and replacing the withheld 20 percent.

Rebalance. Volatility in the stock market this year may have caused your current holdings to shift significantly from their target allocations. Rebalance your portfolio by using new contributions to purchase investments in underweighted asset classes or sell some investments that performed well until you reach your target allocation.

Take advantage of advice. You may be offered investment advice through your 401(k) or IRA plan next year. A new Labor Department rule will allow retirement plan administrators to provide investment advice to account holders in 2012. To prevent conflicts of interest, the rule requires that the advice be given by a financial professional whose compensation does not vary based on the investments selected or a computer model that an independent expert certifies as unbiased.

Remember required distributions. Traditional 401(k) and IRA account holders who are over age 70½ must take required minimum distributions from their retirement accounts each year. Retirees who fail to withdraw the correct amount must pay a 50 percent tax penalty on the amount that should have been withdrawn.

Reconsider your retirement age. Retirement at age 65 isn't for everyone. "For those who go through the income and expense review and find that they can't afford to retire comfortably, working a few extra years can really help," says Daniel Goldie, president of Dan Goldie Financial Services in Menlo Park, Calif., and coauthor of The Investment Answer: Learn to Manage Your Money & Protect Your Financial Future. "This allows them to save more, gives more time for their investments to grow, and reduces the number of years they'll need retirement income. It can also allow them to delay taking Social Security, which increases their payment amount."

Save part of windfalls for retirement. Every once in a while we receive a windfall of extra cash, such as a bonus, tax refund, gift, or inheritance. Consider putting a portion of these lump sums aside for retirement.

Talk to someone who is retired. Find out what they wish they had done differently in the final years of their career and early part of retirement. "Resolve to meet up with a few former coworkers who've been retired for at least a year in order to learn from their real-life experiences," says John Nelson, a life planning coach and author of What Color Is Your Parachute? For Retirement. "What you learn may change the timing of your own retirement, and uncover things you'll want to explore--both before and after you retire."

10 Trends from 2011 We Don't Want to See in 2012

By Philip Moeller

Looking back on 2011, the New Year can't come fast enough. Will things be better in 2012? Without wanting to tempt fate, rarely has a coming year had such a low bar to being better than the previous year. With all fervent wishes for a great 2012 for everyone, here are 10 things that happened in 2011 that should stay in 2011:

1. Congress. The petty yet exhausting fights in Congress produced well-deserved ridicule from an ungrateful nation. The Congressional approval rate hit an all-time low of 11 percent earlier this month, according to Gallup's tracking poll. "This month's record-low congressional job approval rating is one of a number of measures of Congress that have reached historical low points this year." Gallup said. "This suggests that 2011 will be remembered as the year in which the American public lost much of any remaining faith in the men and women they elect and send off to Washington to represent them."

2. Europe. Coming in close second in the discord department is Europe. Every time the U.S. economy threw off some good news, Europe hogged the headlines with a new variation on its inability to fashion a work-out plan for national debts. Lovers of irony may appreciate that Europe, in holding the U.S. economy hostage, is simply returning the favor that America's fiscal irresponsibility has been sending over the pond for several decades.

3. Republican Presidential Contenders. Reality TV is not what we need from our political parties but it's sure what we've gotten from the Republicans. Has there ever been a sillier season of primary debates, gaffes, and personal peccadilloes? Whatever happened to serious discussions of the nation's many serious issues?

4. The Economy. Forget what the experts say. We all know a recession when we see it, and ours has not gone away. There were signs as the year ended that we might be on a steady trajectory of slow growth. But, of course, Congress was not in session at the time.

5. Stock Market. U.S. stocks ended the year at about the same place they started it. But the intervening gyrations and extreme volatility produced a coronary bushel of end-of-the-world trading sessions. Dullness never looked so good.

6. Home Values. Just when the housing gurus agreed the worst of the mortgage mess was behind us, it became painfully clear that it will take years, if not decades, for this statement to be true. Yale economist Robert Shiller, who tracks housing values closely, thinks no one should be surprised if prices are flat for the next 20 years.

7. Entitlement Reforms. Like the boy who cried wolf, politicians and government fiscal experts have reformed Medicare and Social Security through countless plans, a commission, the Gang of Six, and, finally, a Supercommittee. Still, there are zero actual reforms in place. Social Security's retirement income program could survive without reforms for decades. Not so with Social Security's disability program, or Medicare and Medicaid. They continue to hurtle toward very nasty days of reckoning. Where once we had the luxury of instituting reforms gradually, that cushion largely has disappeared.

8. Aging Boomers. Read all about the early-edge boomers turning 65 in 2011. See panic in the streets as we are flooded with old people. See these same boomers turn 66 in 2012, when they will be entitled to their full Social Security benefits. Get ready for more panic. The elderly are coming, the elderly are coming! Please.

9. Retirement Fears. There may be a shortage of retirement savings and investments. There is no shortage of opinion polls and studies about these shortages. Roosevelt said during the Depression that "we have nothing to fear but fear itself." Add fear of gloomy retirement surveys to the list.

10. Social Media Meanness. If you want to ruin a perfectly nice day, spend a few minutes reading the comments on nearly any public blog. Our loss of social civility is stunning. Until things get better, I leave you with the posting etiquette presented on his blog by journalist Barry Ritholtz: "Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous."

10 surprises for 2012

By Matthew Lynn

LONDON (MarketWatch) — Shortly before the 1929 stock-market crash that ushered in a global recession, the American economist Irving Fisher made a rightly celebrated forecast: “Stock prices have reached what looks like a permanently high plateau.”

That should be enough to warn anyone off making predictions, particularly where finance and business are concerned. Still, since we are stuck in the quiet space between Christmas and New Year’s day, here are a few things that might or might not happen in 2012.

1. Mario Draghi resigns

Predictions for the euro zone make as much sense as trying to forecast the weather for the summer of 2020. The situation is so volatile, no one really has any idea what is going to happen any more. Here is one thought, however. The simplest way out of this crisis is for the European Central Bank to start printing money, but the main problem is selling that fix to the Germans. When it comes to the crunch, Draghi will step aside, a German will be installed, and the printing presses will be switched on.
Reuters European Central Bank (ECB) President Mario Draghi

2. Britain starts an Olympic revival

As the French will spend most of 2012 telling everyone, the U.K. economy is in as bad a shape as any in the world. Its debts are a towering 450% of GDP, its key industry — financial services — is in structural decline, and its main trading partner is heading into a deep recession. But the London Olympics will be a huge success. With a devalued currency, falling wages, and a flexible labor force, the U.K. economy will start reinventing itself — and the Olympics will be seen as the point where the economy started to recover.

3. Vladimir Putin resigns

The Russian leader faces what now looks like a tricky campaign for the presidency in March. He’ll win, but without a convincing majority. The political leader he most resembles is France’s General de Gaulle — nationalistic, conservative and authoritarian, but with a deep sense of his country’s history and place in the world. After de Gaulle suffered a setback in a referendum, he resigned in 1969. Before the end of the year, President Putin will step down on health grounds. Once he’s gone, Russia will liberalize — and investors will move into its cheap stocks.

4. The dollar starts a bull run

Barack Obama may or may not be a great president, but with the opposition unable to come up with a convincing alternative, he will cruise to a relatively easy re-election. In a world where the euro zone is imploding, Russia is in turmoil, and the Chinese economy will be looking wobbly, the U.S. will seem to be the only real safe haven. Everyone will want to get that portion of their portfolio that isn’t in gold into dollars — and the currency will embark on a long-term bull run.

5. France accepts a reduced role in the world

This will be a traumatic year for the French. The country will lose its triple-A rating, and sink back into recession. The far-right National Front leader Marine Le Pen will be the star of the presidential election. But in the end, the dull-as-watching-paint-dry Francois Hollande will replace the grand-standing Nicolas Sarkozy as president. By the end of the year, the French will have started to accept that they are no longer major players in the world, either on their own, or through the EU.
Reuters France's President Nicolas Sarkozy

6. Poland steps up to the plate

Which country is the strongest player in the European Union? One with strong growth, healthy public finances, low debt, and a sizable population. That would be Poland. The government deficit was 5.9% of GDP in 2011 and will drop below 2.9% in 2012. Government debt as a percentage of GDP will fall to 52% next year. It is forecast to grow by 2.5% in 2012 even as the euro zone slips into recession. And with 38 million people, this is a major country. As countries such as France lose their triple-A rating, and nations such as Britain drift away from the EU, there will be space for Poland to have an increasingly assertive voice.

7. An investment bank shuts down

An estimated 233,000 staff have been laid off in the banking industry in 2011. Every day brings news of yet more redundancies, and it is only going to get worse in the new year. This is an industry in serious trouble. Banking expanded during the three decades that the developed world leveraged up. During a two-decade de-leveraging, banking is going to become a smaller industry. There isn’t enough business to support so many companies, with so many lavishly paid staff. One of them will close in 2012.

8. Europeans start to migrate

The traditional response of Europeans to economic trouble is to get up and go somewhere else. The U.S. is exhibit A, Australia is exhibit B. With a deep recession looming, many will try their luck elsewhere. It’s already happening. Greek, Portuguese and Irish emigration numbers have all soared in the past year. In 2012, the Italians and Spanish will join the


9. Everyone looks to Iceland

At the height of the credit crunch, everyone bought into the idea that you had to bail out your banks or else the economy would go bust. Except for Iceland. It was too small, and its debts too big, and it ended up defaulting on $85 billion of debt. Mainstream opinion said the country was finished. Not so. This year, it grew by 2.5%, and it is forecast to grow by 1.5% next year. That is a faster rate than the euro zone. Capital controls are being steadily lifted, and the exchange rate is strengthening again. The lesson is inescapable. You don’t need to bail out your banks after all.

10. The Christmas e-card goes out of fashion

Do any of us really need festive greetings from a small bank in Latvia we’ve never spoken to? Is that Austrian management consulting firm sincere in wishing me the best for the holiday season? I doubt it. Listen up guys. It’s not thoughtful. It’s not touching. It’s spam. Frankly, I’d rather get another email from that friendly Ukrainian company that supplies Viagra without a prescription. By Christmas 2012, sending out e-cards will be socially unacceptable — and not too soon.

Matthew Lynn is a financial journalist based in London. He is the author of "Bust: Greece, the Euro and the Sovereign Debt Crisis," and he writes adventure thrillers under the name Matt Lynn.

Saturday, 24 December 2011

Beware of amped-up ETFs

By Janice Revell,

FORTUNE -- Given the extreme volatility in the market these days, the idea of being able to capitalize on all that whipsaw action is alluring. And the fund industry is offering that very opportunity, in the form of leveraged exchange-traded funds.

They're a day trader's dream, and they've been increasing in popularity. But beware: Used improperly, these high-octane investments can wreak destruction on your portfolio -- even if the market moves the way you anticipated.

Leveraged ETFs are amped-up versions of traditional exchange-traded funds, which track the performance of various indexes and asset classes including stocks, bonds, commodities, and currencies. These funds -- which go by such names as "Ultra" or "Double Long" -- use derivatives to deliver two or three times the daily returns of the underlying index. Inverse leveraged ETFs (a.k.a. "Double Short" funds) are designed to produce the opposite performance of the benchmark they track and give investors a way to profit from a declining market.

Sales of leveraged ETFs have soared recently, and now account for about $45 billion in investor assets. As the market tumbled in August, investors plowed about $3 billion into leveraged ETFs, the second-highest money inflow of all ETF categories, according to research firm Strategic Insight.
10 best stocks for 2012

But here's the problem: If you hold a leveraged ETF for more than 24 hours, your returns could be drastically different than what you might expect. That disconnect has prompted both the Securities and Exchange Commission and the Financial Industry Regulatory Authority to issue investor alerts.

The danger lies in the fact that most leveraged ETFs "reset" daily. That resetting, combined with leverage, can cause an ETF's returns over weeks or months to diverge wildly from that of the benchmark. "Predicting the direction of the market is only part of the challenge," says Paul Justice, director of ETF research at Morningstar. "You also have to correctly predict the path the investment is going to take."

Here's how resetting can distort returns. Say you make a $100 investment in both a traditional index fund and a "Double Long" fund that tracks the same underlying equity index. On day one the index rises 10%. The regular index fund closes at $110 and the leveraged ETF adds 20% to finish at $120. Then on day two the index falls 10%. The traditional fund drops to $99 (a 10% loss from $110). But the leveraged ETF plummets to $96, because it started the day at $120 and its return was -20%, or a $24 loss. Repeat that process 50 or 100 times, and the gap between expected and actual returns can grow wide.

If you want to roll the dice on what the market will do tomorrow -- with money you can afford to lose -- then a leveraged ETF is a useful tool. But to make a real investment, stick with plain-vanilla funds.

-- A former compensation consultant, Janice Revell has been writing about personal finance since 2000.

This article is from the December 26, 2011 issue of Fortune.

Procrastinators' Tax Checklist: 10 Money Saving Moves to Make by Dec. 31

By Janet Novack

Let’s face it. Most of us put off tax chores from time to time---not as chronically or recklessly as Congress, but often enough that it can end up costing us. So as a service to the frazzled, here are 10 money saving moves that must be made before Dec. 31 and five others that can be safely postponed until the beginning of next year.

BY DEC. 31:

1. Grab expiring tax breaks. Dozens of tax breaks expire on Dec. 31, and while Congress is likely to reauthorize some of them retroactively, others could permanently disappear. So, for example, if you’re self employed or own a small business and are in the market for a new vehicle, consider buying before Dec. 31. Until then you can write off the full cost of purchasing a new luxury SUV—provided it’s used 100% for business and its gross vehicle weight is more than 6,000 pounds. (More details here.) If you’re considering making energy efficient home improvements, get the work done before Dec. 31 to take advantage of an expiring $500 tax credit. (More on this green credit here.) What about the expiring payroll tax cut you’ve heard so much about? Unless you run the payroll department of a business, there’s nothing you need to do about it.

2. Check the terms of your medical FSA. With a medical flexible savings account, money is deducted from your salary before tax and put in an account to pay medical, dental and vision expenses not otherwise covered by insurance. The catch is, by law, any money you don’t spend in the year it’s saved is forfeited. Back in 2005, the IRS ruled that employers can give workers an extra 10 weeks---meaning until March 15th of 2012 if a plan is on a calendar year, as most are---to use up their cash. But not all employers allow this grace period. So check your plan terms and FSA balance immediately---you might need to order those new contact lenses or go to the chiropractor before Dec. 31. (For surprising ways to use up your FSA dollars, including driving to Wal-Mart to pick up a prescription, click here.)

3. Get charitable checks in the mail or donate online. To claim a deduction for a 2011 charitable contribution, you must mail your check by Dec. 31. You don’t have to worry about the check actually clearing before the end of the year, but play it safe and put it in the mail before the 31st. Any donations you charge to your credit card by Dec. 31 are also deductible for 2011, even if you don’t pay your credit card bill until next year. You’ll find 12 tips for yearend charitable giving from Kelly Phillips Erb, a.k.a. Taxgirl, here . If you would like a deduction for 2011 and aren’t sure yet what charity you want to benefit, Ashlea Ebeling explains here the appeal of a donor advised fund. By contributing to one of these funds, you can claim a deduction for 2011 and then dribble out the money to specific charities when you’re ready. For help picking a worthy charity, Forbes rates the 200 largest here.

4. Accelerate other deductions into 2011. Consider making your Jan. 1, 2012 mortgage payment, or paying state and local tax bills due in January, before the end of 2011. That will give you the tax savings from those itemized deductions a year earlier. Warning: If you are subject to the alternative minimum tax or expect to have a much higher income in 2012 than you had for 2011, accelerating deductions can backfire---so check with a tax pro if you think you might be in that situation.

5. Harvest capital losses if you have them. Sell losing positions in your taxable (meaning non-retirement accounts) to offset any taxable capital gains you’ve realized during the year. Didn’t take any gains this year? Watch out, your mutual fund may have taken them for you; taxable gains get passed on from funds, even if you’ve sold no shares. Anyway, up to $3,000 a year in net capital losses can be used to offset ordinary income (say from your salary), and the rest of any excess losses you harvest can be banked to offset gains in future years. Forbes Investment Strategies columnist William Baldwin explains the basics of capital gains here and how to harvest losses without risking missing out on a market move or running afoul of the “wash-sale” rule here.

6. Make annual gifts to family and friends. You can give $13,000 a year to as many people as you want without it counting against the amount you can give during your life without having to pay gift tax. That lifetime gift tax exemption is currently $5 million, but is scheduled fall to $1 million in 2013. The annual exclusion is a use it or lose it proposition---if you don’t use the 2011 exclusion by Dec. 31, you can’t bank it. (Deborah Jacobs has more advice on tax smart ways to give to family and friends here.)

7. Contribute to a 529 state college savings plan. Thirty-seven states permit you to claim an income tax deduction (anywhere from $500 to Pennsylvania’s generous $13,000 per beneficiary) for contributing to a 529 state college savings plan. But to get the tax break for 2011, you must contribute before the end of the year. You can find an up-to-date list of breaks here at This isn’t just for people saving for their kids’ or grandkids’ educations. If you’re planning to go to graduate school, you can contribute to a 529 for yourself. In fact, Ashlea Ebeling explains here that you can contribute in December, bank your tax break, and then use the money in the 529 for graduate classes in 2013. (Of the states that give tax breaks, only Indiana has a 12 month holding period before you can use a contribution.)

8. If you’re self-employed, set up a one-person 401(k) . So long as you set up a one-person 401(k) by Dec. 31, you can make contributions for 2011 until the due date of your 2011 return with extensions—as late as Oct. 15, 2012, if you operate as an unincorporated sole-proprietor attaching a Schedule C to your individual tax return. Mutual fund companies, including Fidelity, the Vanguard Group and T. Rowe Price offer easy-to-setup one-person 401(k)s, as do Charles Schwab , Merrill Lynch and Edward Jones. More on the benefits of a solo 401(k) is here.

9. If you’re an employee, max out your 401(k). If you have an accommodating payroll department and haven’t yet contributed the maximum allowed to a 401(k) for 2011, you might still be able to get money withheld from that last paycheck of the year. For 2011 you can contribute up to $16,500, or $22,000 if you’re 50 or older, to a pre-tax 401(k), a Roth 401(k) or a combination of the two. Contributions to a Roth won’t save you any 2011 tax, but the money in a Roth grows tax free and you can be withdrawn from the account tax free when you retire or before that if you leave the company, have had the account for at least five years and are 59 1/2 or older.

1o. Take required minimum distributions from IRAs. If you’re over 70 ½ or have inherited an IRA from someone other than a spouse, you must take an annual required minimum distribution from your IRA by Dec. 31. (If you just turned 70 ½ this year, your first RMD can wait until as late as April 1 2012. That’s April 1, not April 15th.) Your RMD for 2011 is based on the balance in your IRA as of Dec. 31, 2010 and your age, in some cases your spouse’s age, and whether the account is your own or an inherited one. (There are three different tables in the appendices of IRS Publication 590 for calculating the percentages of your balance you must withdraw.) Note that while you don’t have to take an RMD from your own Roth IRA, if you have inherited a Roth from someone other than a spouse, you must take RMDs.

Whew! Well, at least these five items can wait until after January 1st.

1. Fund an IRA for 2011. You have until April 17th 2012 (the due date for 2011 tax returns) to make a contribution to a traditional or Roth IRA. Note that the April date holds even if you get an extension to file your taxes. Those with earned income can contribute up to $5,000 a year ($6,000 if they’re 50 or older) to a traditional or Roth IRA, or a combination of the two. There are, however, income restrictions on who can open a deductible IRA or contribute to a Roth. (Details here.) If your teenage children had earned income in 2012, consider opening a Roth IRA for them. (More on this and other ways to turn your kids into millionaires here. )

2. If you’re self-employed or moonlighting, open a SEP IRA. A 401(k) isn't the best option for everyone with self-employment income. For example, if you are moonlighting and have a regular job with a 401(k), a SEP IRA is a better choice. That’s because one annual limit for contributions to a 401(k) applies to all your 401(k) accounts, combined. That means you might be able to save more in a SEP IRA. Even better, you have until the due date of your 2011 returns, with extensions—meaning until Oct. 15th 2012---to set up and fund a SEP IRA for 2011. For more on the best retirement plans for the self-employed, see Kerry Hannon’s rundown here.

3. Pay fourth quarter estimated taxes. If you’re self employed or will owe more than has been withheld from your salary, you have until January 17th 2012, to pay your fourth quarter estimated taxes for 2011. Most states give you until mid January too, but if you want to deduct that fourth quarter state tax payment on your 2011 federal income tax return, you must get the money to your state before Dec. 31.

4. Begin your wealth transfers. If you’ve already made those $13,000 annual gifts for 2011, you can wait until after the first of the year to consult an attorney about transferring more wealth. But don’t delay too long. The current estate tax law, which allows you to give $5 million to your kids and grandkids while you’re alive, expires at the end of 2012---at which point the amount you can give away drops to $1 million. Moreover, certain sophisticated techniques—such as a grantor retained annuity trust—that enable you to give away a lot more than $5 million, benefit from current low interest rates. Plus, there’s no guarantee such techniques won’t be limited in any future deal to renew the $5 million exemption. (In fact, the Obama Administration has proposed restrictions.)

5. Write to your Congressman. Fed up with how uncertain the tax code has become, with dozens of provisions expiring each year? Enjoy your holiday now and write an angry letter after the good cheer has worn off.

When to Put Your Cash Back Into the Market

By Walter Updegrave

I have a substantial amount of cash I want to move into stock and bond mutual funds I already own. I'm aware of the concept of dollar-cost averaging, but I'm afraid that as soon as I move the money it will decline in value and take years to recover. My question is not about what to invest in, but how to make those investments timing wise. -- Robert P.

Dollar-cost averaging and timing aren't the central issues here. They're sideshows.

The real question is: Does the mix of stock and bond mutual funds you already own truly represent the balance of risk versus reward you're comfortable with as an investor?

If it is, then you should immediately invest the cash along the same lines your current investments are allocated. So if you decided that a portfolio of 60% stocks and 40% bonds is the right investment mix for your time horizon, then you should put 60% of the new cash into stock funds and 40% into your bond funds.

But if you're not okay with your current asset mix, then you need to change it to one that's appropriate -- and then immediately invest your new money in the same proportions.

I realize this isn't the standard advice you would get from many, if not most, personal finance journalists, advisers, talking heads on cable TV business shows and much of the blogosphere. The conventional answer would be to tout the supposed benefits of dollar-cost averaging and talk about the way it reduces risk or boosts returns or performs all sorts of wonderful magic.

But all of that is nonsense. Dollar-cost averaging is a clunky, inefficient way of investing. It's just been mindlessly repeated so many times that it's become dogma, which, as the late Nobel laureate Paul Samuelson once told me, is "a truth so truthful that we dare not question it."

But if you step back a moment and look at your situation from a slightly different vantage point, I think you'll see what I'm getting at.

While your fear of losing your money as soon as you invest it is understandable, you need to remember that you're already vulnerable to market declines. It's a natural consequence of investing. If the market tanks, the money you already have in stock and bond mutual funds will take a hit.

But you don't guard against that possibility by pulling your money out of your funds every time you're worried about a setback and then re-investing it when you feel better about the market. That's a recipe for selling low and buying high.

No, you protect against the risk of market setbacks by practicing asset allocation -- that is, you put together a mix of stock and bond funds that can generate decent long-term returns while keeping the downside to a level you can tolerate.

So what makes you think you should you do anything different with this new cash you're looking to invest? You shouldn't.

As for the oft-recommended strategy of dollar-cost averaging, or gradually moving your cash into your portfolio, say, by dividing it into twelve pieces and investing one piece each month, all you're really doing is taking a year to get to the asset mix you've decided is right for you. In short, you're undermining the investment strategy you've set.

So here's what I recommend instead.

Start by going over your current mix of funds and make sure that it truly reflects your tolerance for risk. The fact that you're so concerned about investing this new money makes me wonder whether you're investing more aggressively than you should.

I'm not suggesting that you huddle down in money-market accounts, bond funds or anything like that. But the key to investing is assuring that you're comfortable with your overall portfolio.

There are a couple of tools that can help with that assessment. If you go to Morningstar's Asset Allocator tool, for example, you can re-create your current portfolio and see how your investments might grow over different periods of time and get a sense of what kind of short-term setbacks you might suffer along the way. You can then try different mixes of stocks and bonds to see how they might perform.

You might also want to take a look at Fidelity's Portfolio Review tool. After choosing a goal and plugging in some info about your investments, you'll get a pie chart showing how you're currently invested, along with some stats showing the best and worst one-year return for that that mix as well as its average performance over the past 85 years. You can then use the slider to create more conservative and aggressive portfolios and see how they performed.

Once you're comfortable with the make-up of your portfolio, you can turn your attention to the cash you want to invest. And there the solution is simple: take the cues from the portfolio you've decided is right for you. No timing, no dollar-cost averaging. Just invest the cash into your existing funds in the same proportions they represent of your overall portfolio.

Following my recommendation doesn't mean the value of your investments won't decline if the market falls apart. But short of getting out of the market altogether (which then leaves you guessing about when to get back in) there's no way of avoiding that.

But going through the process I've outlined gives you your best chance of investing all your money, new and old, in a way that has a decent shot at getting the returns you want, while keeping risk at a level you can handle.

Tuesday, 20 December 2011

Think Before Buying: Material Possessions Won’t Make You Happy, Says Consumer Expert

Can money buy happiness? Those who don't have money believe it can. Money means having fancy clothes, designer accessories and desirable cars, bigger homes and exotic vacations. Money allows entry into the gilded and coveted life of the rich and famous. Or maybe having money simply means being able to pay for your child's higher education and having the ability to fix that leaking roof or broken refrigerator.

The timeless aphorism "money doesn't buy happiness" solicits the classic response "of course it doesn't" but many individuals still act like it does, according to Jim Roberts, a marketing professor at Baylor University and author of Shiny Objects: Why We Spend Money We Don't Have in Search of Happiness We Can't Buy. Americans are addicted to material possessions, he says, and his research on consumer behavior shows that consumers are seeking happiness in all the wrong places, leading to unaffordable credit card bills, no savings and in the worst case, personal bankruptcy.

He tells The Daily Ticker's Aaron Task in the attached clip that we've become "compliant" - retailers tell us to shop on Black Friday and we do, for example — and money "is good, but up to a point." Individuals can use money for their own betterment, such as giving to others. Vacations with friends and family also foster and nurture personal satisfaction because traveling can lead to lasting memories and unforgettable experiences.

It's important for people to search for what truly makes them happy. Money and material possessions aren't necessarily evil he says, but "it's the love of money and material possessions" that's the root of all evil. The statistics he uses as evidence against consumerism are quite shocking if not startling:

-More than 1.5 million Americans filed for bankruptcy in 2010

-The average American household carried nearly $10,000 in credit card debt in early 2011

-70% of Americans live paycheck to paycheck

What's more, Americans undergo an "endless binge-and-purge cycle of 'things'," Roberts notes in Shiny Objects. This includes throwing away 150 million cell phones each year or tossing out two million water bottles every five minutes. For all the compulsive and mindless spending, consumers can be saved, Roberts says. But "until your attitudes change your behavior is not going to follow," he warns.

Roberts' simple steps for controlling spending and avoiding debt include:

-Having an emergency fund of $2,500 for the unexpected expenses

-Regularly making investments to a retirement account

-Putting at least six months of living expenses in the bank

The Truth About Wealth

By Robert Frank

Affluence Is Becoming a Temporary Phenomenon. Here's How to Dodge the 'Beta Trap' and Hold On to What You've Got

Who says the rich always get richer?

Despite heated rhetoric emanating from politicians and pundits, the top 1% is hardly a fixed group that enjoys consistent income gains. To the contrary, the wealthiest have become the most crash-prone group in our economy.

The total income of the top 1%—or those earning more than $343,000 in 2009—fell by more than 30% from 2007, according to the most recent Internal Revenue Service data. By contrast, the average income of the bottom 90% fell less than 3% during the same period.

A November Federal Reserve study, meanwhile, found that a third of the people in the top 1% in 2007, as measured by wealth, were no longer in the top 1% in 2009.

The good news: Despite the turbulent new economics of wealth, there are safeguards that the rich and future rich can deploy to cushion the shocks and mitigate their risks.

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The wealthiest have likely recouped some of their sunken fortunes since 2009, along with financial markets. Yet the latest wave of data points to an indisputable trend—we have entered the age of "High-Beta Wealth."

On Wall Street, "beta" measures volatility relative to the overall market; a beta of 1.0 signals alignment with the market. Technology and gambling stocks can have betas of 1.5 or more, since they tend to overshoot the market in cyclical ups and downs. Utilities, by contrast, both rise less and fall less than the overall market and usually have betas below 1.0.

The new rich have become the high-betas of our economy. With their dependence on financial markets, their leverage and their hyperspending, the top 1% have income swings that now are more than twice as high as those of the rest of the population.

A study by Jonathan A. Parker and Annette Vissing-Jorgensen of Northwestern University found that the beta of the top 1% nearly quadrupled between 1982 and 2007 to 2.39. The top 0.01% had a beta of 3.96, making even the riskiest tech stocks look safe by comparison. Economists and wealth managers say the betas of the rich have likely soared even higher in recent months as markets gyrated sharply.

"Being a high-beta in today's environment is different from being a high-beta in the '80s or even the '90s," says Craig Rawlins, president of Harris myCFO Investment Advisory Services, which serves wealthy families. "People are more susceptible to making bad decisions than they've ever been. There is higher risk in the marketplace today, with a lot more volatility."

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Lee Hausner, a California-based psychologist who works with the ultrarich, has one client she calls "The Phoenix," a real-estate developer and investor who borrowed and spent heavily. He has surged and crashed twice over the past decade, reaching a net worth of $400 million, losing it, then hitting $200 million and losing it again.

"He's an impulsive risk-taker," she says. "He always lays everything on the line."

For risk-takers who want to get rich and stay rich, Ms. Hausner advises taking a step back every so often and evaluating important decisions rather than leaving them to impulse.

"Some of these people roll the dice and they get rich," she says. "But they have to realize that if they roll it again, the result may not come out as well. They need to stop themselves before they roll again, and deliberate."

When the Wealthy Falter

Though the high-beta wealth trend has been growing for close to three decades, it has accelerated markedly in recent years—enough to pique the interest of some financial pros.

In 2003, private-banking chief Maria Elena Lagomasino set out to study why so many rich people she knew were blowing up. Entrepreneurs, tech tycoons, real-estate titans and even CEOs who were known for their money savvy would make millions one year and lose it the next.

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"This question just fascinated me," says Ms. Lagomasino, CEO of Genspring Family Offices, a wealth-management firm based in Palm Beach Gardens, Fla. "How is it possible that people who are on top of the heap can fall so precipitously?"

Her report, called "Beating the Odds: Improving the 15% Probability of Staying Wealthy" and commissioned when she was chief executive of J.P. Morgan Private Bank, found that only 15% of the Forbes 400 stayed on the list over a 21-year period. (Deaths accounted for less than a third of the drop-offs.)

The report grouped the reasons into five main categories:

Overconcentration. The path to rapid riches for many of the wealthy involves betting big on a single company or asset class, whether it is a tech start-up, real-estate or gold. When those assets boom, the gains are huge. When values decline, they can take an entire fortune with them.

Leverage. Debt has become the rocket fuel for lifting the rich into another financial orbit, amplifying gains and magnifying losses. In recent years, the wealthy have been using more debt than ever to maximize their investment gains, expand their businesses and fund their lifestyles Yet unexpected changes in their businesses or incomes can turn manageable debt levels into wealth destroyers.

Spending. Even among the more-restrained wealthy, "some of these folks really don't have a clue how much they are spending," Ms. Lagomasino says. Many look at their paper net worth and assume they can afford that private jet or fourth home. Yet their spending often exceeds their cash flows and returns, leaving them one crisis away from a financial collapse.

The "toxic cocktail." The first three reasons are often linked, with the newly wealthy betting big and borrowing big on a business, then using their paper wealth to fund a large lifestyle. When these three factors unwind at the same time, often forcing the rich to sell at distressed prices, they can instantly destroy huge fortunes.

Family issues. These include divorce, inheritance battles and family-business disputes.

There also are macroeconomic reasons. Before the 1980s, wealth came largely from inheritance, oil and privately owned businesses—all fairly predictable and stable sources of money. After the 1980s, more large wealth came from the stock market.

Executives became wealthy from stock-based pay. Entrepreneurs got rich by starting and selling companies, either through initial public offerings or mergers. And Wall Street bankers, hedge-fund managers and private-equity chiefs made money from market bets.

How to Keep It

So how can investors and entrepreneurs stay wealthy without becoming high-beta casualties?

Wealth managers, psychologists and financial advisers say the age of high-beta wealth requires new financial and psychological tools to make and preserve family fortunes.

Gregory Curtis, chairman of Greycourt & Co., a Pittsburgh-based wealth-management firm, works with old-money families, some of whom have preserved their fortunes for four or five generations. He says one secret to enduring wealth is for families to divide their fortunes into two buckets: the "spending" bucket and the "appreciation" bucket.

He said families should live almost entirely off the spending bucket, which should be filled with a diversified, liquid portfolio of dividend-paying stocks and bonds and cash equivalents.

The appreciation bucket can be mostly stock or an ownership stake in a company. This bucket also can contain hedge funds, bets on currencies and commodities, and other investments.

The important point is that families should never have to rely on the "appreciation" bucket to fund day-to-day expenses.

"The biggest risk we see is concentrated holdings," he says. "So we say, 'Your lifestyle should be supported entirely by a liquid portfolio.' Even if they lost everything in the appreciation bucket, they're still OK."

The high-beta rich often have more than half of their wealth in one asset, whether it is a company or a single stock. As a general rule, wealth managers tell clients to avoid having more than 20% to 30% of their wealth in a single asset.

Limiting debt also is critical to avoiding crashes. The debt load of the top 1% has tripled over the past 30 years. Experts say a family's debt shouldn't exceed 25% of its assets, even though few follow the rule.

Stephen Martiros, a Boston-based adviser to family offices, says wealthy families should secure credit lines with longer time horizons (think years instead of months) to help them cope with economic storms.

"The real question for the high-beta wealthy is, 'Can you weather a worst-case storm?'" he says. "You don't want to be in a position of being forced to sell an asset at the wrong time because of leverage. That's when you get into real trouble."

Start-Up Come-Downs

What about entrepreneurs? Those who launch companies and bet everything on their success are loath to cash out too soon. Based on Facebook's latest valuations, co-founder Mark Zuckerberg would have given up nearly $1 billion in future value for every percentage point of equity he might have sold in the name of diversification. That isn't to mention the negative signal it sends to shareholders.

Yet wealth managers suggest that the Zuckerbergs of the world should regularly sell off small chunks of their stock as soon as their companies go public—or even sooner. They may be losing some upside, but they are building a critical safety net in case of a fall.

Netflix CEO Reed Hastings, for instance, has regularly sold shares of Netflix stock for years as part of a planned stock-sale program. While he may have given up millions in paper wealth during the stock's rise, the cash from those sales was protected when Netflix stock fell by nearly 75% this fall. (Many shareholders weren't as lucky, of course.)

In Silicon Valley, the latest wave of tech founders is cashing out earlier and taking more money off the table than previous generations, learning the lessons from the high-beta-rich crashes of 2001. Groupon's largest shareholder, co-founder Eric Lefkofsky, reaped more than $300 million from dividends and stock sales before the company even went public last month.

Last March, Zynga founder Mark Pincus sold a small piece of his stake back to the company for $109 million, according to regulatory filings.

The sale price was $14 a share—higher than the stock's IPO price of $10 on Friday.

"These private sales appear to be increasing, providing the potential for high-beta wealth to take some money off the table," says Mr. Rawlins of Harris MyCFO.

How High Is Your Wealth Beta?

To find out your "beta" rating—a measure of the volatility of your wealth relative to everyone else—answer these seven questions.

1. Is your total debt relative to net worth ...

Less than 10% (1 point)

Between 10%-20% (2 points)

More than 20% (3 points)

2. Is your total annual spending relative to net worth ...

Less than 3% (1 point)

Between 3%-5% (2 points)

More than 5% (3 points)

3. Your most valuable asset is what percentage of your total net worth?

Less than 10% (1 point)

Between 10%-20% (2 points)

More than 20% (3 points)

4. What percentage of your total wealth is illiquid—that is, invested in a house, company or investment that can't quickly be converted to cash?

Less than 10% (1 point)

Between 10%-20% (2 points)

More than 20% (3 points)

5. How often do you gamble, bet or play the lottery?

Never or almost never (1 point)

Once a month (2 points)

More than once a month (3 points)

6. In social or business situations, do you believe you are the smartest person in the room?

Never (1 point)

Sometimes (2 points)

Most of the time or always (3 points)

7. Do you think your lifestyle five years from now will be ...

Worse (1 point)

Unsure or the same (2 points)

Much better (3 points)


7–10: Low beta

11–15: Medium beta

15–19: High beta

19 or higher: High-beta crash waiting to happen

Write to Robert Frank at

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Friday, 16 December 2011

Frustrated With Stocks? Here’s How to Profit From Pessimism

If you're frustrated with today's jittery financial markets, you're certainly not alone. Unfortunately there are no quick fixes to resolve the issues fueling the market's ups and downs --namely the European debt crisis, a shaky global economy, and U.S. political gridlock. But before you throw in the towel and unwind your positions into the recent weakness, Alec Young, global equity strategist at Standard & Poor's Capital IQ has some sectors to reconsider into year-end.

"We think the best thing (the Consumer Discretionary) (XLY) sector has going for it is extremely low expectations on the domestic economy," says Young. Just like the better than expected Black Friday sales, he sees more positive surprises ahead since the economic pessimism is "more than factored in."

For the record, FactSet research shows Q4 Consumer Discretionary sector earnings are seen growing by 4% vs 14% for the full S&P 500, with sales up 8% vs 7% for the index.

Young is promoting a similar GARP (Growth At A Reasonable Price) strategy in his affinity for the Tech Sector (XLK), which he thinks will "outgrow a pretty anemic overall economy" as companies strive to increase productivity. Instead of cherry-picking winners, Young's approach on tech is to own "the top 10 or 20 holdings" by market cap, which he says tends to "drive the bus" anyways.

By way of context, there are currently 72 stocks in the S&P 500 Information Technology sector, with the 10 biggest being, Apple (AAPL), IBM (IBM), Microsoft (MSFT), Google (GOOG), Oracle (ORCL), Intel (INTC), Cisco (CSCO), Qualcomm (QCOM), Visa (V), and Hewlett-Packard (HPQ).

And again, Young says "We think tech can exceed a very low bar of expectations."

It probably comes as no surprise that Young's final favored sector is a defensive hedge in the form of the Consumer Staples (XLP), which he says is "also a nod to the fact that Europe remains a massive wildcard."

Along that same line of thought, Young is avoiding Financials (XLF). He simply doesn't see value yet in the market's hardest hit sector, which fallen about 20% this year.

"We really need to feel that we're through the worst with Europe," he says, adding that Financials ''have the most to lose" if the sovereign debt crisis escalates.

"There isn't more uncertainty anywhere than in the financial sector," Young says. "Investors hate uncertainty."

Tuesday, 13 December 2011

7 Ways to Tweak Your Retirement Plan for 2012

By Mark Miller

"Set it and forget it," infomercial marketer extraordinaire Ron Popeil used to say.

That might have worked for Ron's easy-to-use chicken rotisserie -- but it's not a good approach for your retirement portfolio. Even the best-built retirement plan needs a periodic check-up, so here's a list of seven tips, tweaks and reminders for the year ahead.

1. Adjust your 401(k) contribution.

The maximum employee contribution allowable by the IRS rises by $500 in 2012, to $17,000; workers over age 50 can contribute another $5,500 in catch-up contributions. If you're already maxing out, adjust your contribution rate for 2012 accordingly. Deductible contribution maximums for traditional IRAs and Roth IRAs are unchanged for 2012 - you can sock away $5,000 (or $6,000 if you are over age 50).

2. Rebalance.

Make sure your equity and fixed income allocations are on target by buying or selling assets as needed to make sure you're not taking more risk than desired. Adds Jessica Ness, director of financial planning at Glassman Wealth Services: "Rebalancing puts an automatic buy-low and sell-high methodology to work because you trim asset classes that have grown in size and you contribute to asset classes that have shrunk." Ideally, you should rebalance quarterly.

3. Consider Roth IRA options.

A Roth isn't always the best investment option for available pre-tax dollars because it's a bet on future tax rates, and what you expect your personal tax rate will be in retirement. But a Roth is a slam-dunk option if you're investing after-tax dollars because everything in the account grows tax-free.

Income eligibility limits to qualify for a Roth IRA contribution will increase in 2012. Single income tax return filers with modified adjusted gross income (AGI) less than $110,000 will be eligible to make the maximum contribution to a Roth; for joint filers, the income limit will be $173,000.

If you don't meet the income qualifications, there's another option: the so-called "back-door Roth." It's a two-step process; first, you make a contribution to a non-deductible traditional IRA; then immediately convert that IRA to a Roth. "The key is to do the conversion right after you make the contribution, so the account doesn't have time to accrue taxable earnings," says Maria Bruno, a senior investment analyst at Vanguard Investments.

A caveat: This strategy works best if you don't have other traditional IRA assets, because federal law requires you to aggregate all your IRA assets for tax purposes. So, if you have significant IRA assets that were funded with pre-tax contributions, you'll need to weigh the potential tax bite.

4. Don't forget to take required distributions.

Retirement investors over age 70 1/2 must take the required minimum distribution (RMD) from most types of retirement accounts (except Roths). But some retirees seem to be forgetting this; Fidelity Investments reports that two-thirds of its IRA customers haven't taken RMDs as of early November.

RMDs are calculated for each account you own by dividing the prior December 31 balance by a life expectancy factor that you can find in IRS Publication 590. Often, account providers will calculate RMDs for you -- but the final responsibility is yours. Any RMD amounts that you don't withdraw on time will be taxed at 50 percent.

5. Top off liquid assets.

A great strategy for extending portfolio life in retirement is to make sure you have sufficient cash on hand to meet expenses without being forced to sell equities when the market is down. Yearend is a good time to refill your "liquid asset pool," that may have been depleted this year, notes Christine Benz, director of personal finance at Morningstar. When considering what to sell, think about your overall portfolio asset allocation, investment strategies and taxes, she says.

"A positive side effect of ensuring that you have adequate cash reserves is that you can keep a cool head during volatile markets, knowing that your near-term living expenses are covered," Benz adds.

6. Give away your IRA.

The law allowing donors over 70 1/2 to make charitable contributions from an IRA is set to expire at the end of this year, unless Congress acts. The Qualified Charitable Contribution provision allows contributions up to $100,000 to be made direct to a single or multiple charities. The gifts aren't deductible, but they are excluded from your income -- and that can help you avoid triggering high income premium surcharges on Medicare or Social Security taxes. The gifts also can be counted toward your RMD.

7. Evaluate your draw-down strategy.

Most Americans don't have a "decumulation" plan -- that is, how much to draw down from savings and when. The trick here is finding a balanced approach that meets income needs while avoiding the risk of running out of money especially in difficult market conditions.

"Ensure that you know how much you have withdrawn over the past year and the amount you may need to withdraw next year," says Ness. "Portfolio values may be down, so withdrawing the same amount in 2012 that you did in 2011 could have a greater negative impact on your portfolio. Knowing how much you need to withdraw for next year and understanding the impact that could have on your portfolio will allow you to make any adjustments necessary, before it is too late."

Wednesday, 7 December 2011

Singapore braces for sharply slower growth in 2012

By Bernice Han

Singapore on Monday predicted sharply lower economic growth of 1.0-3.0 percent in 2012 amid an export slowdown and warned the situation could worsen if Europe's debt woes trigger a global crisis.

"This does not factor in downside risks to growth, such as a worsening debt situation or a full-blown financial crisis in the advanced economies," the Ministry of Trade and Industry (MTI) said in a statement releasing the data.

"Should these risks materialise, growth in the Singapore economy in 2012 could come in lower than expected," it added.

The city-state's 2011 gross domestic product (GDP) growth is estimated at 5.0 percent, down from an all-time high of 14.5 percent in 2010 when the economy was coming off a 0.8 contraction during the 2009 recession.

Singapore's open and trade-driven economy is regarded as a bellwether for Asia's exporters, which depend heavily on electronics and other manufactured shipments to North America and Europe for growth.

"It looks like the risk is towards the downside," Chua Hak Bin, a Singapore-based economist with Bank of America-Merrill Lynch, said of the implications of Singapore's forecast for the rest of Asia.

"The fact that the tech exports were weak will mean other Asian economies will also see tech exports being pulled down," he told AFP.

Asia's fate will depend to a large degree on whether Europe can contain its debt crisis which has engulfed large economies including Italy and Spain, according to Chua.

Singapore's GDP was valued at Sg$284.6 billion ($219 billion) in 2010, and total trade was more than three times as large.

"The longer the European debt crisis drags out with no clear solutions, it will have a negative impact globally," said Selena Ling, an economist with Singapore's Oversea-Chinese Banking Corp.

"We are starting to see the impact come through."

The MTI said it expects Singapore's electronics industry and other sectors that rely heavily on overseas orders to remain under pressure despite support from Asia's better-performing economies.

"Although resilient domestic demand in emerging Asia will provide some support to global demand, it will not fully mitigate the effects of an economic slowdown in the advanced economies," the MTI said.

Even the financial-services sector will be affected by heightened uncertainties in the external environment, it added.

The forecast came as data released separately Monday by the trade promotion body International Enterprise Singapore showed electronics exports tumbling 17 percent in the third quarter from a year ago.

The ministry's downbeat projections for 2012 came as it released third-quarter figures showing GDP grew 6.1 percent, an improvement from 1.0 percent in the second quarter.

Singapore is a significant producer of high-end telecommunications and computer-related parts shipped to the rest of the world as well as petrochemical and pharmaceutical products.

"Within the manufacturing sector, the electronics cluster is expected to register a lower level of output given the downturn in the global electronics cycle," the MTI said.

"This in turn will have knock-on effects on the precision engineering cluster and wholesale trade."

ADB cuts East Asia growth forecast as risks grow

Kelvin Chan

HONG KONG (AP) -- Economic growth in East Asia will continue to wane in 2012 as sovereign debt problems in Europe and an anemic U.S. economy raise the risk of a deep global downturn, the Asian Development Bank said Tuesday.

The ADB cut its 2012 growth forecast for 14 East Asian economies excluding Japan to 7.2 percent from the 7.5 percent predicted in September. In a worst-case scenario -- in which the U.S. and Europe slow as much as they did in the 2008-2009 global crisis -- East Asia would grow only 5.4 percent in 2012, the development lender said.

The ADB also lowered its 2011 forecast slightly to 7.5 percent from 7.6 percent.

The Manila-based lender said its "cautiously optimistic" outlook for the region faces "much greater downside risks than just a few months ago."

Those risks include a deep recession in both the Europe and the U.S., rising protectionism and persistent or resurgent inflation.

"The recovery in advanced economies lost steam this year and they will continue to struggle," the report said. "While U.S. economic growth could strengthen somewhat, the eurozone will likely fall into either a brief recession or a more severe long-term downturn."

Emerging Asian economies are "certainly not immune" to a major slowdown in advanced economies, which would hurt their economic growth and pose "significant policy challenges," it said.

Many developing Asian countries including China are dependent on economic growth in the U.S. and Europe, which are major markets for the toys, clothing and electronics churned out by the region's countless factories.

Safeguarding the region's robust growth against another global crisis is the biggest challenge, said the report, which urged policymakers to increase regional trade and financial ties and expand links with other emerging economies to reduce their dependence on the U.S. and Europe.

The report covers China, Hong Kong, Taiwan, South Korea and 10 Southeast Asian countries.

Tuesday, 6 December 2011

Rich-Poor Divide Is Widening OECD Says

The gap between rich and poor is widening across most developed economies as skilled workers reap more rewards and top executives and bankers benefit from a global job market, the Organization for Economic Cooperation and Development said.

The average income of the richest tenth of the population is now about nine times that of the poorest tenth, the Paris- based OECD said today in a report. The gap has increased about 10 percent since the mid 1980s.

Mexico, the U.S., Israel and the U.K. are among the countries with the biggest divide between rich and poor, while Denmark, Norway, Belgium and the Czech Republic are among those with the smallest gap. The earnings multiple is 14-to-1 in the U.S. and Israel, compared with about 10-to-1 in the U.K., Italy and Japan and 6-to-1 in Germany and Denmark.

"The social contract is starting to unravel in many countries," OECD Secretary-General Angel Gurria said in a statement. "This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that the greater inequality fosters greater social mobility."

The OECD used a "Gini coefficient," or standard measure of income inequality that ranges from zero to one. At zero an entire population would have identical incomes, while at one all income would go to one person. The coefficient stands at about 0.316 today, up 10 percent since the mid-1980s.

The coefficient rose in 17 out of 22 OECD countries for which long-term data are available. Only Turkey, Greece, France, Hungary and Belgium recorded no increase or small declines in their coefficients, the OECD said.

"There is nothing inevitable about high and growing inequalities," Gurria said. "Up-skilling the workforce is by far the most powerful instrument to counter rising inequality. The investment in people must begin in early childhood and be followed through into formal education and work."

To contact the reporter on this story: Mark Deen in Paris at

To contact the editor responsible for this story: Craig Stirling at

Five Myths About Emerging Markets

This year's mutual-fund scoreboard highlights an interesting conundrum about investing in emerging markets.

Economies of big emerging-markets countries such as China, India and Russia have been growing much faster than the plodding U.S. economy. Yet if you own a fund that focuses on emerging-markets stocks, the chances are good that its performance this year has been lagging far behind the returns of the U.S.-stock funds in your portfolio.

How could that be?

The idea that a nation's economic performance is the main driver of returns in equities is one of several unfounded beliefs many investors have about the relative merits of developed and emerging markets. And this year, it has helped fuel strong demand for emerging-markets stock funds, which were one of the few areas in the equities fund world to see continued inflows during recent stock-market volatility.

If you're considering buying or selling an emerging-markets stock fund, it might be worth taking a closer look at some of these myths:

Myth 1: High stock valuations aren't a big deal in fast-growing economies.

The reality is that even in fast-growing nations it matters whether stocks are cheap or expensive relative to company fundamentals.

Investors have flocked to emerging markets for several years, expecting stronger economic growth there to produce stock returns well above those in the U.S. and Europe. As a result, emerging-markets stocks grew relatively expensive among global markets, based on valuation yardsticks such as price-to-earnings ratios.

The idea was that the high valuations weren't all that important. But they were. And investors discovered that, to their chagrin, when authorities in China, Brazil and other nations, concerned that their economies were overheating, tightened their money supplies and took other steps to temper growth and discourage speculation. Diversified emerging-markets stock funds were down 17.1% on average this year through Nov. 30, according to Thomson Reuters Corp.'s Lipper unit. And the stocks aren't expected to rally strongly anytime soon, according to a survey of forecasters by New York-based Heckman Global Advisors.

Meanwhile, in the U.S., investors bid stock prices sharply lower during late summer amid worries that the economy was headed for another recession. But when economic data continued to suggest that growth would remain positive, if sluggish, U.S. stocks began to look like a bargain.

Investors rushed back in. Through Nov. 30, the Standard & Poor's 500-stock index was down 0.9% in price and up 1.1% in total return including dividends.

Here's a silver lining: If you're considering adding emerging-markets funds to your portfolio, this might be an opportunity. "On a historical basis, emerging markets look pretty cheap today,'' says Michael Reynal, who heads the emerging-markets group at Principal Global Investors, Des Moines, Iowa.

Myth 2: Emerging-markets stocks are well-insulated from financial upheavals elsewhere in the world.

The thinking here is that emerging markets would march to their own beat simply because of their supercharged growth. That might have been true in the past. But today, stocks in most emerging nations trade closely in sync with those in New York and London. That's happened as companies in emerging nations have become bigger players on the world stage and as global flows of money have accelerated.

This year, as in developed markets, emerging-markets stocks were hit by fears about financial contagion spreading from Europe. In fact, they were hurt more than U.S. stocks. That's because the U.S., for all its economic and fiscal headwinds, still is viewed as the safest place to park money.

As you manage your portfolio allocations, think of emerging-markets stocks as akin to U.S. small-cap stocks in terms of risk, says Brian Gendreau, a veteran Wall Street money manager and market strategist for Cetera Financial Group, an El Segundo, Calif., advisory concern. "The more you allocate to emerging markets, the higher your expected return—and the higher the volatility of your portfolio,'' he says.

Myth 3: Emerging markets are a growth play.

Emerging-markets funds may indeed provide good growth if you invest smartly and have a long time horizon. But that's not the whole story. It also may be worth looking at emerging-markets funds that can provide income by focusing on bonds or dividend-paying stocks.

Eaton Vance Emerging Markets Local Income (EEIAX-News) invests in bonds of emerging nations, such as Malaysia and Indonesia, that are denominated in their local currencies. It is designed to provide income and diversification for U.S. dollar-based investors and it recently yielded about 4.7%. WisdomTree Emerging Markets Equity Income (DEM-News) is an exchange-traded fund that focuses on emerging-markets stocks with high dividend yields. It yields about 8.5%.

Some newer funds own mixes of emerging-markets stocks and bonds, similar to U.S.-focused balanced or allocation funds.

Strategic Latin America (SLATX-News), which has about $24 million in assets, holds a roughly equal mix of equities and bonds. Its performance was hurt recently by big declines in Latin American stocks and currencies. But over long periods, its share price should gyrate less than half as much as major U.S. stock indexes, says the fund's manager, Heiner Skaliks, making it possibly useful as a diversifier.

Pacific Investment Management Co. and Franklin Templeton Investments this year also launched funds that provide exposure to a range of emerging-markets assets, such as stocks and bonds. But these are still relatively untested.

Myth 4: Emerging-markets currencies will appreciate as the dollar continues its long-term decline.

That may prove true over many years, amplifying the returns for U.S. investors who buy into emerging markets, but it certainly wasn't the case in recent months. So far this year, emerging-markets currencies have generally weakened against the dollar; while the MSCI Emerging Market Index was down 14.8% in local currencies through Nov. 30, it was down 19.4% in dollar terms.

In September, worries about Europe's fiscal crisis sparked a rush back to the dollar, which investors viewed as a temporarily safer haven than some alternatives. The currencies of Brazil, Hungary, South Africa and Poland, among others, were savaged. The two Central European currencies trade closely in sync with the euro, because of close trading ties, and so slid as Europe's financial crisis flared. Brazil's widely traded currency may just have been an easy asset for big investors to sell when markets turned more choppy.

In calmer times, emerging-markets currencies could generate very attractive returns for U.S. investors, gaining against the dollar as the result of global financial imbalances, says Michael Cirami, who helps oversee emerging-markets funds at Eaton Vance Management. But sometimes they can significantly add to the volatility of emerging-markets funds, he cautions.

Myth 5: You can do even better by concentrating on just a few of the strongest emerging nations.

In recent years, investors have piled into exchange-traded funds that focus on individual nations, such as Brazil, Russia, India and China. iShares MSCI Brazil Index (EWZ-News), among the largest, has about $9 billion in assets.

But such ETFs offer much less diversification. And because they are highly liquid, or easy to trade in large amounts, their prices can be buffeted by abrupt shifts in global investor sentiment that may have little to do with longer-term fundamentals.

This year through Nov. 30, for example, WisdomTree India Earnings (EPI-News) is down 33% even though India's economy is likely to grow by better than 7% in both 2011 and 2012, according to Morgan Stanley Research.

Investors who want to capitalize on the growth prospects of emerging markets, but with less volatility, should consider funds that target broad regions or a wide range of emerging-markets countries, says Karin Anderson, a senior analyst at Morningstar. Among her recommendations is Vanguard MSCI Emerging Markets ETF (VWO-News), which holds about 900 stocks in nearly two dozen emerging countries.

Mr. Pollock is a writer in Ridgewood, N.J. Email him at

Friday, 2 December 2011

A rather depressing summary of bad bonuses forecasts in Singapore, Shanghai and Hong Kong

Shree Ann Mathavan

Bank bonuses seem to be universally shrinking. Asia, often cited as the engine of growth for many firms, isn’t impervious to suddenly skinnier payouts either. Even front-office staff – the revenue-generators who are typically well compensated – will be hard hit by the bonus crackdown. Here’s a forecast of what the pool will be like for front-office employees in Singapore, Hong Kong and Shanghai.


Angela Kuek, head of front-office banking and financial services, Hudson, predicts a “significant decline” in bonus payments. “Last year top performers got 75 to 100 per cent on their base salary and average performers got a bonus of a couple of months. This year average performers will either get zero bonuses or be told to go. Anything from 50 per cent on base salary and above will be considered above average.”

Kuek doesn’t expect a rush of post-bonus activity. “I don’t think there will be much supply of roles in the front-office because deal flow isn’t going to be that strong, at least not in the first six months of 2012.” Whatever little movement there is will be due to redundancies – both teams and individuals. Although most Singapore-based candidates aren’t looking to move right now because of job-security fears, Kuek is seeing increased interest from returning Asians and professionals based in Europe.

Hong Kong

Hubert Tam, managing partner, Sirius Partners, sees bonuses falling by about 50 to 60 per cent in Hong Kong. However, he cautions that payments will vary between different front-office roles. Equity derivative positions will be pretty badly hit. Some senior candidates have already been made redundant in Hong Kong, he says. The flow side of businesses, like cash equities and FX, however, is likely to do slightly better.

Tam has seen a handful of strong equity derivatives candidates quit their roles within the last month – even without another position lined up. The resignations were sparked off by news that they would get doughnut bonuses. “I think everyone realises that banks are not doing well, but the willingness to accept a zero bonus is not very high because these candidates make money for the bank. They do expect some kind of reward.” Like Kuek, he reckons post-bonus activity will be minimal and will be mostly triggered by layoffs.


Zhangliang Cao, senior consultant, banking, Antal International, predicts a 50 to 80 per cent drop in payouts from last year. While zero bonuses are possible, Cao says management will consider handing out performance bonuses in a bid to retain staff, especially because there is fierce competition for talent on the mainland. “Top performers will still receive bonuses, but this will be a decrease, to correspond with the average drop in bonuses.”

Cao believes it’s too soon to tell what the post-bonus outlook will be, but says the China market will remain buoyant well into 2012.

The only way to succeed in finance is by playing nasty office politics – here’s what I’ve seen and learnt

If there is ever a poignant piece of advice that university lecturers and textbooks failed to warn me about upon graduating and entering the workforce, it is the fundamentals of office politics. Not long after finding my feet in my new professional environment, I learnt pretty quickly that sometimes it’s the brownnosing and “who you know, not what you know” ticket that guarantees movement up the corporate ladder.

I have sat back and watched in amusement as co-workers, managers, directors and the like strategise to get themselves promotions and bigger bonuses. They masterfully do whatever it takes to get their own way and they make the game of office politics look like an art form.

My disappearing manager

I once had a manager who disappeared from his desk at 12pm sharp every Friday and would stumble back to the office every few hours smelling of cigarettes and alcohol. He used these bar-hopping benders as quality bonding time with his higher-ups. As everyone would agree, there is a definite correlation between this fraternisation and my manager always getting what he wanted.

Another co-worker started off as a lowly analyst in the bank. She was poor in experience but had a killer personality, was super talented at banking and invited us to the wildest parties. She knew exactly how to win over everyone in the office. Two years into her job, she set a precedent by skipping one management level and was catapulted up to become associate director.

Gang rivalries

Perhaps the most memorable display of politics I’ve witnessed was when my recent manager was looked over for the CFO position she had patiently waited ten years for. The job was taken by an outsider after she returned from holiday.

In response to what felt like a scathing slap in the face, she made her new boss’ life miserable by withholding information, refusing to work in unison, wearing the passive-aggressive front on a daily basis, and ultimately garnered the sympathy and backing of the staff. Refusing to be bullied, the new CFO mobilised new recruits and slowly started to take power. It was a sad case of office gang rivalry – more nonsensical and dramatic than West Side Story.

My takeaway

My observations and experience have been isolated to the highly competitive and cut-throat world of finance, where capitalism is the name of the game. Financial services can unfortunately have the ability to seduce employees to do whatever it takes to get more money, more power and more recognition. The advice given to me by a colleague on this unavoidable dilemma is: “Do your work and stay out of it”.

But if you have been overlooked for a promotion you were deservingly next in line for (and then you took the moral high ground and didn’t cave into playing politics), better luck next time.

Don’t hate the player, hate the game.

The awful job market is now pushing people out of banking

Shree Ann Mathavan

Bleak prospects in the banking industry are making some people contemplate a career change. A few employees, especially those in the middle and back office, are now even thinking the previously unthinkable – leaving banking altogether.

Derek Kenny, director, Gulf Connexions Group, has seen an increase in such moves among finance tech (project management and business analysis), finance and HR professionals.

“Banking is becoming a pretty easy place to headhunt out of for organisations in other industries such as tech firms, telcos and aviation. A top candidate is a top candidate and although there will be a learning curve when you move industries, companies are willing to invest in smart people,” says Kenny. He knows of one corporation which specifically looks to hire candidates from banks.

John Mullally, manager, financial services, Robert Walters Hong Kong, has seen job seekers move into professional services firms like management consultancies or accountancy practices. However, in most instances these people still work within the broader finance industry.

Staying on is getting increasingly harder

It used to be that traders who were let go from tier-one banks could count on getting employed fairly easily in tier-two banks. However, such moves are increasingly difficult to pull off now, says Kenny. Employees who are laid off are facing the new reality that getting re-employed takes time. With banks downsizing, Kenny reckons this will “inevitably” lead to more people leaving the industry over time.

That certainly seems to be the case for traders in the commodities and energy markets whose teams have recently shrunk because of a harsher trading climate. Reuters recently reported that at least 10 bank traders have left their jobs in Asia over the past year. More than half joined physical oil trading companies and only three others joined banks.


Making the transition to a non-banking role isn’t easy, of course. Mullally says the move is likely to result in a considerable pay cut. “It is unlikely for most banking professionals to switch industries and receive a salary increase. Firstly, they are probably not bringing a huge amount of domain knowledge to said industry and secondly, bankers are actually paid quite well, in comparison to professionals in other industries.” Those looking to leave banking will also need to retrain.

The road ahead

Mullally says there will continue to be career opportunities for banking professionals, just not on the same levels that the industry has been accustomed to. However, areas like compliance and risk management remain hot.

Although there may be a trend of even more people moving out of the industry in the near future, this is likely to be triggered by further redundancies, he adds. “The interesting trend to look at will be how many graduates over the new few years choose to pursue a banking career as it has undoubtedly lost some of its lustre, and graduate programmes will have far smaller intakes.”

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