The Daily Herald from Arlington Heights, Illinois on March 9, 2008 · Page 137
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The Daily Herald from Arlington Heights, Illinois · Page 137

Arlington Heights, Illinois
Issue Date:
Sunday, March 9, 2008
Page 137
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SUNDAY, MARCH i). 2008 DAILY HERALD SECTION:* PAGE 3 DaOyHerald THE WALL STREET JOURNAL The Weekly Guide to Managing Your Money © 2008 Dow Jones £$ Company, Inc. All Rights Reserved. Some Fund Losers Surprise Investors BY SHEFALI ANAND M utual-fund investors have had few places to hide in the market turmoil of the past few months. But there are some surprises in the types of funds that have gotten hit hard and those that have fared a little better. Both stock and bond funds have been singed in the market downturn since October. In fact, only a quarter of the 68 categories of stock and bond funds tracked by research firm Morningstar delivered positive returns from Oct. 1 through Thursday. The Dnw Jones Industrial Average is down 16% since Oct. 1, including a 3% drop last week. Some of the most conservative funds, like those which hold U.S. Treasury bonds, were the clear winners, as investors rushed to them seeking safety. Some conservative balanced funds—which invest in both bonds and stocks—fared better, as did some so-called market- neutral or long-short funds which specifically aim to perform differently from the stock market. But investors in some seemingly conservative bond funds were surprised to see their funds lose money. And among stock portfolios, "growth" funds invested in fast-expanding companies have recently fallen harder than those which invest in cheap "value" stocks, surprising many who had expected growth stocks to continue to do better after several years of value outperformance. Investors generally should not make major changes based on short-term performance, and should instead stick with their asset-allocation plan. But Few Places to Hide Performance of selected categories of mutual funds "Growth" Falls Harder Lately (since year end) Growth-stock funds -13% Value-stock funds -10 Mixed Picture for Bond Funds (since Oct. 1) Long Government Intermediate-Term Bond RR1.4 Ultrashort Bond High Yield Bond -5.11 Bank Loan -6.81 Note: Figures are total returns through Thursday s.n Source: Morningstar if a fund is performing in an unexpected way or has turned out to be too risky for your taste, you should reassess—and maybe "bite the bullet and take the loss," says Kathleen Piag- gesi, a financial planner with New York-based K/A/P Planning Advisory. Here's a closer look at three areas of surprise. Ultrashort Bonds So-called Ultrashort bond funds, which invest in bonds of an average duration of one year or less, are often used as a tool to park short-term cash. But the average Ultrashort fund has returned a negative 0.7% since Oct. 1, due to investments in mortgage-backed securities that have gotten battered in the mortgage meltdown. Among hard-hit Ultrashort funds, State Street Global Advisors' SSgA Yield Plus Fund is down 14% since Oct. 1, while Schwab YieldPlus Fund and Pimco Floating Income Fund are down 8.1% and 6.1%, respectively, according to Morningstar. Ultrashort funds gained popularity in the last few years as interest rates remained at historically low levels, and investors were looking for higher- yielding options than money- market funds. "It came back to bite us," says Steven Weydert, a Park Ridge, 111., financial adviser who had clients' money in both the Schwab and Pimco funds. He says he was "surprised" to learn that these funds had mortgage-related investments—although the funds' prospectuses state that they can invest in mortgage-backed securities. Mr. Weydert has sold the Pimco fund and has been getting out of the Schwab fund, and is putting the money instead into U.S. Treasurys and other bond funds. Bank-Loan Funds Also hurting are funds that buy pieces of loans that banks have extended to certain companies—typically businesses that carry below-investment-grade credit ratings. Conservative investors often buy such funds because they carry little interest-rate risk: Rates on bank loans reset every two months or so. In contrast, the rates on most bonds are fixed until maturity; as a result, when rates in the marketplace rise, the prices of existing fixed- rate bonds (and funds that hold them) fall. Investors have taken comfort from the fact that, if a company gets into financial trouble, holders of such loans get seniority over some other creditors. However, amid the broader credit-market turmoil, investor demand for these loans has dropped sharply, hurting prices. The average bank-loan fund is down 6.8% since Oct. 1. This is a sharper decline than the average 5.1% drop for high-yield bond funds—even though the below-investment-grade bonds those funds hold have less credit protection than bank loans. The recent performance shows that bank-loan funds come with their own set of risks. "If you're buying these [loan] funds as an alternative to cash then that's really a silly idea," says Ross Levin, a financial adviser in Edina, Minn., who doesn't use these funds. However, for those prepared to bear the market volatility in search of higher returns, advisers suggest sticking with them. Growth vs. Value On the stock side, some of the hardest hit funds are those which specialize in financial and real-estate companies, down 23% and 19%, respectively, since Oct. 1. One unanticipated development has been the recent un- derperformance of growth funds versus value funds. After value beat growth from 2000 through 2006, growth finally overtook value in the first half of 2007 and held onto that lead throughout the year. But lately, growth funds have lost more. Growth funds and value funds have both declined 15% since Oct. 1, according to Morningstar. But since the start of this year, growth funds are off 13% vs. a drop of 10% for value funds. The results are surprising partly because many value funds have big stakes in financial shares. But some investors are shying away from growth stocks because of fears of a recession, which would impact the ability of companies to grow their revenue and sales. Many financial advisers had been adding dollars to growth companies in their portfolios, and this turn of events threw them for a loop. Karen Dolan, director of fund analysis at Morningstar, says that given that both value and growth stocks have been hurt lately, both look attractive. "It's a tough call right now" between growth and value, she says, adding that it might be best for investors to balance their allocations to the two. Email: forum.sunday03( 401(k) Loans Can Bite You F eeling a cash crunch? Think twice before tapping into your 401(k) account- especially as the economy slows. A growing number of debt- laden workers are borrowing from their retirement plans. In a recent survey by Transamerica Center for Retirement Studies, 18% of TIP OF workers had a THE WEEK retirement-plan loan in 2007, up from 11% in 2006. These loans can be tempting because they don't require borrowers to have pristine credit and they carry relatively low interest rates. What's more, borrowers pay the interest to their own account. But 401(k) borrowers can face serious pitfalls. One big risk: Leaving your job before the loan is repaid. If that happens, you'll have to repay the full remaining balance right away, or else face income taxes on the unpaid balance and, likely, a 10% penalty if you're under age 59'/ 2 . As the economy slows, raising the prospect of more layoffs, that scenario looks particularly scary. Would-be 401(k) borrowers should also consider how the loan will affect their retirement savings. Given the stock market's recent declines, participants now borrowing from plans may be selling assets at depressed values to fund their withdrawals. In addition, the interest you pay to your account may be less than the return your money would have earned if you'd left it invested in the 401(k). By Eleanor Laise INVESTOR'S CALENDAR LOVE & MONEY THIS WEEK • Drug Scrutiny: A Food and Drug Administration panel Thursday reviews anemia drugs from Amgen, Johnson & Johnson and Roche Holding. • Google Ruling: Google may get approval from European regulators for its takeover of ad firm Doubleclick. Wall Street Journal Sunday writers regularly contribute to the Journal's weekday "Your Money Matters" personal-finance podcast. Listen • Putting on the Brakes: General Motors plans to idle four more plants this week due to a shortage of parts from a strike-hobbled supplier. • Inflation Watch: The consumer price index for February is out Friday. • Home Run? An Illinois agency may make a formal offer this week to buy Chicago's historic Wrigley Field baseball park from Sam Zell's Tribune. LAST WEEK • Stocks Fall: The Dow Jones Industrial Average fell 3% last week and the Nasdaq Composite Index fell 2.6%, amid worries about recession and the credit crunch. • Shrinking Payrolls: Employment fell in February at its IN THE MARKET DOW DOWN DOUBLE DIGITS: After sliding again last week, the Dow Jones Industrial Average is down 10.3% so far in 2008. The usually more volatile Nasdaq Composite Index is down 16.6%. Should Amy Go Part Time? Readers Say... Feb. March Jan. 2008 Source: WSJ Market Data Group fastest rate in five years, adding to recession fears. • Foreclosure Help? Federal Reserve Chairman Ben Bernanke encouraged lenders to help struggling homeowners by reducing the principal of their loans. • iPhone at Work: Apple unveiled plans to make the iPhone more appealing to corporate users. • New Talks: Yahoo and Time Warner stepped up talks on creating an alternative to Microsoft's bid for Yahoo. • Driving Less: With gasoline prices at record levels, U.S. gas use in recent weeks is down about 1% from a year ago. THE WALL STREET JOURNAL I'uul I). Hell Vice I'rt'xitleiit, I'tirtner liiisint-ssex (212MI51H212 l'iml.U<'ll(<itli>w,jimes.cum Murk Pope Direclur, The Journal Utimrl & Siiei'inl I'rujeets (212) 5U7-58U8 Mark.l'olit'fednw.jimcs.rojii Steven A. Townsley Director of Nates (2l2)SU7-i733 2(1(1 l.ibi'riy Slri-L't New Vi.rk, N.V. 10281 Lawrence (tout, Senior KMor l.arry.l(iiiit(a>wsj.i-(>iii Duvid Crook, Kditur l)a\ id.('rouk(n wsj.i-nm Karen Duinuto, News Kilitor Kari'ii.l)uiiiulu(a'whj,coiM Murk 'lyner, An Dim-tor Murk.Tyia i r(<i>wsj.i < uiii TKI.KI-MDM;: (OOU) 520-4(100 KMAIU SI M)AV03(il'U.SJ.niM 4,'iDO HULn: I NIIIITII Sui in Bui N.-.UII K. N.J. 088<*/2 KIIK A Si'B IAI. Jin itvu. Si IIM iiini ()i I Kli, I'.MJ.: 1-80(1-210-7788 S hould my wife, Amy, go part time, quit working altogether, or stick it out in the work force and continue to try to balance work and family demands as best she can? Readers came down on every side of that question last week. I wrote last Sunday that Amy has begun talking ^n**"'^! ' i ^ 'If ' ; ^ ' i I'ifvkh By Jeff D. Opdyke ing to reduce the amount of hours she works so she can devote more time to our family. ALL OF THIS WEEK'S EDITION is AVAILABLE ON OUR FREE WEB SITE : made any decisions yet. But it's a plan I largely support, because in addition to the obvious satisfaction it will bring to Amy and the kids, it also will benefit both my work and home life. That doesn't add up for Dale Burlinson, a reader in Sacramento, Calif. "I want to hear the conversation during which your wife explains why it's OK that the family's happiness depends on her happiness," he says. "She signed on as a participant tin the family], not a domestic. She needs to man up and deal with [her work life]." Mr. Burlinson also has a message for me: "Don't be an enabler." Gary Kane, in Fair Lawn, N.J., had stronger words for me, saying I am "a meek man who is subservient" to Amy. "It's always her feelings that you anguish over. You moved from New Jersey to Louisiana to accommodate her. Now, she has second thoughts about her career [and] you're trying to justify caving in to her feelings. When do you get to say that you've made career sacrifices for her in the past and she now has to live with the consequences?" Shannon Kennedy, in Milwaukee, says she was "surprised at the slack you cut your wife. She dragged your family from an area you loved to pursue her 'dream job' [and] now she is ready to quit. Why did she uproot your family? She didn't know this a couple years ago? Don't we all, at some point, get tired of working? Love & Money: A Video Love & Money is now in video podcast format. Get information on how to subscribe at, where this week you can watch Amy Opdyke explain why she is thinking about cutting back on her work hours. That's life. Deal with it." (You can see Amy explain her thinking in this week's video at money.) * * -it- Deb Pavlica, in West Springfield, Mass., says Amy should "go for it." Ms. Pavlica says that after adopting their first child years ago, she cut back to 10-12 hours a week at work, "and I have never looked back. Yes, we have sacrificed some savings and, perhaps, some other luxury items...and we've given up some travel opportunities. But we have been able to prioritize and still—after 12 years—do most of the things we were able to do as a two-income family." What's more, Ms. Pavlica says, "it's not forever. It is a natural progression to want to get back to work as children get older. I have added hours to my work schedule and am now working 20 hours a week." But, she concludes, "children do grow up fast and you can never get the time back." Debbie Katz, in Folsom, Calif., says she made what seemed like a difficult decision three years ago to cut back her workweek to 32 hours. But she and her husband have structured their life to make the situation work financially. She handles the morning shift with the kids, and her husband goes to work earlier so he can be home to manage the afternoon shift. That move eliminated $1,200 a month in child-care costs. Equally important, Ms. Katz says, "I have a jump on the day when I come home, meaning I have more time in the evenings to relax, to be with the family, and even volunteer for the PTA. The level of sanity is so much better." Her biggest worry: the loss of future earnings. "I won't be promoted as a part- time employee. I'm earning retirement at a [four-fifths] rate, extending my future retirement date, and we're not saving as much as we should be for college. Regardless, I've never looked back because the level of calmness has increased tenfold. Happiness for everyone." * * * To test whether a one-income life would work, Tom Mayer, in Wake Forest, N.C., says he banked his income for six to nine months, living off solely what his wife earned. The story, he says, "ends well. I eventually left the corporate position." Kevin Piazza, in Tustin, Calif., says he and his wife "worked out job descriptions," detailing each of their responsibilities when his wife went part time. "The benefit to the family was apparent from about the second week," Mr. Piazza says. "My wife is much happier, which makes everyone happier. My kids love it. wish we had done it when our first child was born." Sharon Cece, in Willow Spring, N.C., says that many would-be one-income families don't recognize the cost savings of giving up a job. She returned to work after her second child was born, and, she says, "at first, we didn't consider the monetary cost—money spent picking up dinner (I was too tired to cook); money for cleaning; money for gas to and from my job; money for a caregiver, which ate up half my salary." And then there's the emotional cost, she says, of not being available for school functions. "I figured out my actual salary—I made a grand total of $1.50 an hour," Ms. Cece says. "I quit right away. Being with your kids and managing your home wisely and efficiently has so many advantages, financial and otherwise." Jeff Opdyke covers personal finance for The Wall Street Journal. Email:lovemoney(

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