Three smart money moves for 2013

Updated 09 January 2013
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Three smart money moves for 2013

CHICAGO: Using the non-courageous power of hindsight, it’s easy to look back on the previous year and see where the “smart” and “dumb” money flowed.
The direction of money last year tells a well-worn tale: When fear dominates, money moves into safer vehicles such as bonds and money-market funds.
After 2008, you can hardly blame anyone for still wanting to avoid volatility. But those who retreated mostly to fixed-income have missed the better part of a bull market that’s been running since 2009.
Although the S&P 500 index ended up about 13 percent in 2012, most investor funds flowed away from stocks during 2012. Investors redeemed money from stock funds for the 19th straight month through November, 2012, according to Lipper Research, a division of Thomson-Reuters. Nearly $ 4 billion was pulled out of US stock funds in the week ending January 2.
Bond and money-market funds were more like mirages and less like oases last year. In November, for example, some $ 95 billion was added to fixed-income, while $ 14 billion was redeemed from stock and mixed-equity funds. The Nasdaq Index climbed more than 1 percent in November, its best showing for that month in three years.
I know Washington will throw investors into a lot of pot-holes on the way to negotiating debt ceiling and budget issues. But it’s still a good time to buy stocks.
The employment recovery is still on track, with more than 150,000 jobs added last month, the Labor Department reported recently. Gains are also being posted in personal income, housing and corporate earnings. If you can ignore the relentless noise from Capitol Hill, it’ll be possible to make some more intelligent money decisions.

Here are three ways to ensure that you’re making smart money moves this year:

1) Invest broadly on a regular basis. One way to avoid the herd mentality is to stay focused and buy fixed-dollar amounts monthly in all investment styles and company sizes — if you can afford to take the risk. You can invest in a broad range of stocks through funds like the Fidelity Spartan Total Market Index fund (FSTMX) or the Vanguard 500 Index fund (VFINX).

2) Invest cheaply. If you’re going to buy individual stocks, make sure that they have dividend reinvestment plans, which allow you to buy new shares and reinvest dividends without paying brokerage fees.
Since the beginning of 2009 through the end of 2012, the S&P 500 index has returned more than 77 percent, if you include reinvested dividends. That’s about a 16 percent annualized return. Even if you adjust for inflation, it’s still a 13 percent annualized gain.
By contrast, the Vanguard Total Bond Market ETF (BND), a proxy for US bonds, returned about 5.6 percent over the past five years through the end of 2012.

3) Invest passively. If there was any measurable smart-money movement in 2012, it was into exchange-traded funds, which gained net inflows for 12 straight months. The lion’s share of this money went into low-cost index ETFs, which track specific markets and sectors rather than relying upon money managers to pick securities. All told, more than $ 150 billion was shifted into ETFs during the year, the biggest surge since 2008.
A key reason ETFs are gaining assets is that they charge rock-bottom annual fees and hold passive portfolios of large baskets of securities. There are no timing errors, almost no turnover costs and you get near-index returns.
If you’re investing in stocks — or any other securities for that matter — choose ETFs that charge 0.10 percent annually or less.
Actively managed funds are yesterday’s game and you’re not likely to get last year’s performance. Most of these funds don’t beat indexes over time. If they do, it’s mostly due to luck.
— The author is a Reuters columnist and
the opinions expressed are his own .


Is the Dubai economy turning the corner?

Updated 10 min 59 sec ago
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Is the Dubai economy turning the corner?

  • Expo 2020 expected to boost GDP
  • Relaxation of residency rules helps real estate

LONDON: Is the Dubai economy finally turning the corner? At least one major international bank thinks so.

It follows a move by the emirate's leadership to reboot an economy that has been hit hard by corporate job losses, the introduction of VAT and a slowing real estate sector.

The UAE’s non-oil economy is likely to “turn a corner” next year with Dubai’s Expo 2020 infrastructure projects, changes to visa rules and increased government spending set to boost growth, according to a Bank of America Merrill Lynch (BofAML) research note.

Abu Dhabi National Oil Company’s (ADNOC) downstream expansion plans are also expected to drive the country’s non-oil GDP growth, said the note compiled by Middle East and North Africa (MENA) economist Jean Michel Saliba.

The Gulf country’s real GDP growth is estimated to rise to 3.5 percent in 2019 from a forecast 2.8 percent increase this year and a 1.9 percent increase in 2017, said the note published on Thursday.

Buoyed by a recovery in oil prices, Abu Dhabi approved a 50 billion dirham ($13.6 billion) three-year stimulus package in early June, which BofAML estimated could add 0.4 percentage points to non-oil GDP growth.

ADNOC’s $45 billion five-year downstream investment plan — revealed in May — is estimated to add a further 1.1 percentage point to the emirate’s non-oil growth, the report said.

The Expo 2020 event in Dubai could drive up GDP growth by 2 percentage points between 2020 and 2021, the report said, by boosting job creation, consumption and tourist numbers.

Given the improvement in oil prices, the cost of Abu Dhabi’s stimulus spending is considered “financeable” by BofAML, while Dubai’s spending plans are said to be “modest.”

Recent structural reforms, including plans to introduce long-term expatriate visas for up to 10 years, could help to boost the UAE’s population and consumer demand, the note said.

“The new UAE long-term and temporary visa system should facilitate retention of white-collar expatriates,” it said.

“As we expect longer-term visas not to be linked to continued employment, this may increase expatriate incentives to acquire property and support real estate demand.”

The UAE announced in May that it would allow 100 percent foreign ownership of UAE companies in specific industries by the end of the year, a move that could give a welcome boost to foreign direct investment in the country.

A new UAE-wide insurance scheme may provide a one-time boost to corporate profits, the note said.

The UAE cabinet approved plans in June for the insurance scheme to replace the previous system whereby employers had to provide a monetary guarantee to cover each of their workforce.

The move is likely to free up capital that companies could choose to sit on or to reinvest, BofAML said.

“Should corporates invest, we estimate this could lead to a one-off 0.1percentage point boost to UAE non-hydrocarbon real GDP growth,” the report said.