John Wasik

CHICAGO, June 29 (Reuters) – Portfolio volatility is your
sworn enemy if you’re nearing retirement or market downturns
make you nauseous. But if you’re a buy-and-hold investor – and
believe that stock market risk diminishes over time – you still
need a new course of action.

With high-frequency robotic trading, exchange traded funds
and global news hitting markets at the speed of light, there’s
no reason to believe volatility is going away.

Recent research by Lubos Pastor of the University of Chicago
and Robert Stambaugh of the University of Pennsylvania confirms
this view. In a forthcoming piece in the Journal of Finance,
they examined 206 years of stocks returns and confronted the
conventional wisdom that stock risk declines over time.

“We find that stocks are actually more volatile from an
investor’s perspective,” they concluded, citing “uncertainty
about future expected returns” as a major factor. The
Lubos-Stambaugh paper seeks to refute earlier research by
luminaries such as Jeremy Siegel, also of the University of
Pennsylvania, who claimed that stock market risk is reduced over
long holding periods. His book “Stocks for the Long Run” was a
bestseller before the dot-com crash.

In the wake of the 2008 meltdown, there’s ample evidence
that volatility has been increasing. You need only look at the
calamity of the past few years to know that conventional
investing has been a gut-wrenching roller-coaster ride.

The CBOE volatility index (VIX), which measures short-term
volatility of S&P stock index options, has hit its highest level
in the last 20 years three times since 1998, and has closed
above 25 – a notable high point linked to market declines – five
times during that period.

One way to reduce market risk is to lower the overall
allocation of stocks in a portfolio. If that doesn’t appeal to
you, add specialized exchange traded funds to the mix. You can
buy inverse ETFs from the PowerShares, Direxion or FactorShares
groups, for example, that gain when stocks lose. Have a large
position in single stocks, particularly those of your employer?
Buy put options on them to protect against downside risk.

Also keep in mind that asset classes that typically don’t
move together can fall off the cliff at the same time during an
extreme market crisis. That was the case in 2008 with U.S.
stocks, emerging market stocks, commodities and real estate
stocks, or REITs. This unexpected correlation blew the
traditional thinking of Modern Portfolio Theory diversification
out of the water.

WARNING SIGNS

Many portfolio managers have developed an early-warning
system that tells them when an asset class is due for a fall.
Under a “tactical asset allocation” model, they will rebalance
into less volatile investments when they see a market storm
brewing. Another approach is “Adaptive Market Hypothesis,” which
combines behavioral investing, derivatives and active management
to target and reduce volatility.

One fund, the Natixis ASG Global Alternatives,
managed by AlphaSimplex in Cambridge, Massachusetts, employs
hedge fund-like strategies to “maintain a targeted level of
volatility.” Jerry Chafkin, a fund manager and president of
AlphaSimplex, says his firm uses algorithms to monitor market
activity daily – and makes adjustments automatically to stay
within a preset volatility range.

Chafkin’s fund held up during the market tsunami in late
2008 – it was launched Sept. 30 of that year – and early 2009.
It posted only a 0.62 percent loss in the first quarter of 2009,
compared with a negative 11 percent for the S&P 500.
Year-to-date, though, it is down 3.80 percent, in contrast to a
7.04 percent total return for the S&P.

“Volatility was unprecedented in the most recent financial
crisis,” Chafkin told me. “And we expect the volatility of
volatility to continue. But now instead of knowing how much risk
to expect, investors have uncertainty.”

Managing volatility isn’t free, though. The more involved a
hedging strategy – especially those involving “absolute return”
funds that seek positive returns in any market – the more you’ll
pay a fund manager. These specialized funds also can lag when
the market is flat or rising, and can be costly. The expense
ratio for the ASG fund (A class) is 1.60 percent annually with a
5.75 percent sales charge, for example, compared with 0.55
percent for the average exchange traded fund. While that’s a
relative bargain for most hedge funds, it’s quite pricey for an
ETF.

If you don’t want to buy an off-the-shelf fund, you’ll need
to find an advisor who understands derivatives. Any
sophisticated hedging strategy should be done with a trained
registered investment adviser, certified financial planner or
chartered financial analyst, since you can still lose money with
these strategies.

You can also find pre-allocated portfolios at sites like
MyPlanIQ.com and Folioinvesting.com. But if you come from the
ultra-risk-averse camp, you may not even need them if you can
reduce your stock holdings and replace them with single U.S.
Treasury, municipal or inflation-protected bonds. They are among
the simplest answers to market volatility and are generally the
most effective if you don’t want an active strategy to fully
replace your buy-and-hold objective.

CHICAGO, June 25 (Reuters) – If there was such a thing
as a global financial uncertainty index, it would be soaring to
a stratospheric level.

The euro zone crisis still festers, 15 major banks were
recently downgraded by Moody’s and the U.S. faces a boatload of
political risk through its year-end of fiscal cliff tax
increases.

Markets are being roiled by volatility, and so bonds have
become like caves – refuges from widespread fear.

Welcome to the golden – or rather leaden – age of
uncertainty.

“It’s a groundhog day effect – it’s as if the news is
replaying and the European Union goes around in a tortuous
circle,” says Jeremy Grantham, chairman of GMO LLC, speaking at
the Morningstar Investment Conference in Chicago on June 22.

The positive news that’s often being obscured by darker
headlines is that earnings for large U.S. companies are fairly
robust, although Grantham, whose firm manages more than $105
billion and is known for being a top value investor, sees them
as “abnormally high” and U.S. stock valuations as “not cheap”.

While Grantham may not be optimistic about short-term market
conditions, he’s long advocated high-quality stocks and a focus
on long-term resource shortage issues. Even in a skittish time,
for the largest corporations, profits usually translate into
steady dividend payments. His firm’s GMO Quality III fund
, for example, invests in mostly giant companies like
Microsoft Corp, Johnson & Johnson and Apple Inc
. The fund’s dividend yield is 2.7 percent.

Like many market observers, Grantham sees slow-to-moderate
economic growth over the next seven years. He forecasts that
U.S. “high-quality” stocks will grow about 5 percent over the
next years, overshadowed by emerging markets at nearly 7 percent
and international large companies at 6 percent.

Running a parallel path with his outlook for stocks is a
growing reality that natural resources aren’t keeping pace with
the population growth of the 7 billion souls already on the
planet. That forces a long-term focus on resource allocation and
commodities. To feed everyone, more land, fertilizer and
agricultural productivity is needed.

Grantham has created a chart of a commodity index that
starts in 1900 and shows that there have been “rolling crises of
availability” only broken by a “great paradigm shift” in recent
years in which demand has soared.

“Never has there been such a crushing of an asset class
(commodities) and a rebound to an all-time high,” he added at
the conference.

How will the world produce more natural fertilizers and
arable land when the supply is finite and food production may be
hitting an “agricultural glass ceiling?” That answer isn’t
known, but in the interim, Grantham suggested “thinking
favorably about farms, resources, fertilizer and timber.”

OPPORTUNITIES

In this bleak scenario, what should a long-term investor
keep in mind? That the euro crisis and U.S. political logjams
will eventually pass, although not without a heavy dose of sturm
und drang or “storm and stress”.

There will be opportunities to buy stocks that have what
analysts call wide “moats,” that is, they can generate cash and
dividends in even the most trying global situations. Grantham’s
Quality fund, for example, is heavily weighted in consumer
defensive and healthcare stocks.

A more long-term approach is to buy funds that track an
index of commodities such as the PowerShares DB Agriculture
exchange-traded fund that holds futures contracts in
everything from coffee to wheat.

If you want even more specialization in this sector,
consider the Global X Fertilizers/Potash ETF, which
concentrates on fertilizer companies; or the Market Vectors
Agribusiness ETF, which has a broader mix of companies
in this sector.

Other considerations include ETFs like the Consumer Staples
Select SPDR fund, Vanguard Consumer Staples ETF
or the iShares Consumer Staples Index fund.

Aside from tweaking your holdings, there’s always an
opportunity in the age of uncertainty to lower portfolio risk.
Make sure you adjust your allocations to the human capital
opportunity you have. Are you nearing retirement and heading
into a fixed-income lifestyle? Then your main concern should be
cash flow, limiting your expenses and hedging against inflation
with inflation-protected securities and annuities.

If you’re younger, evaluating your human capital risk also
involves an honest view of how your income will be impacted in
coming years. Are you in an industry or profession that’s prone
to downsizing or outsourcing? In recent years, even once-secure
government jobs have been disappearing.

Ultimately, it’s your ability to generate a sustainable
income and save it that will be the most demanding test in these
anxious times. Remember the best forecast has nothing to do with
stocks or bonds; it’s the one that most accurately predicts your
ability to weather the many storms ahead.

CHICAGO (Reuters) – The one thing the Supreme Court will have no impact on as it decides the constitutionality of the Affordable Care Act is the immutable trend in U.S. healthcare: the growing cost of caring for an aging population.

A handful of industries will remain profitable despite the thorny politics of healthcare policy, and the best way to view this volatile situation through the lens of stocks is in the long term.

The annual growth rate in healthcare spending is expected to remain around 4 percent from now until 2014, then ratchet up to 6 percent, according to recent forecasts by the Centers for Medicare and Medicaid Services. In comparison, general consumer prices are rising just under 2 percent on an annualized basis.

Other than burgeoning costs, there’s demographics. Some 10,000 baby boomers are turning 65 every day – a trend that will continue until 2030, when boomers will comprise almost one of every five Americans, according to the Pew Research Center. Naturally, their healthcare needs will be increasingly costly and complex. They will still demand specialized care for chronic conditions, pharmaceuticals and acute care.

With those likely developments in mind, here are two sectors I think will prosper.

PHARMACEUTICALS

It’s an undeniable trend that pharmaceuticals will continue to be utilized as a way to lower overall healthcare costs. From 1999 to 2009 alone, according to the Kaiser Family Foundation, prescription sales rose 39 percent, compared to general population growth of 9 percent.

Only a large-scale government purchasing plan will pare profits in this sector – a good idea for lowering costs, but unlikely politically, at least in the next year or so. Yet as pharmaceuticals and biotech drugs assume an even greater role in managing chronic conditions and preventing surgery, look for growth in this industry.

For a focus on pharmaceuticals, consider the SPDR S&P Pharmaceuticals fund, which holds large manufacturers like Eli Lilly & Co, Pfizer Inc and Abbott Laboratories Inc and lesser-known biotech firms. A more international portfolio can be found in the iShares S&P Global Healthcare Sector fund.

MEDICAID AND MEDICARE MANAGED CARE PROVIDERS

Once the pariah of health consumers, managed care has quietly been assuming a growing role in reducing healthcare costs in public programs. Cash-strapped Medicaid programs, which cater to the poor, have been accelerating the push to get more patients into these plans and out of costly fee-for-service. At present, there are more than 26 million Americans in Medicaid managed care programs, according to the Kaiser Family Foundation.

The only wild card preventing growth in this sector is whether Congress will restrict or reduce funding for Medicaid, although managed care is seen as a viable way of managing or reducing costs.

If you just want to focus on healthcare providers, then an ETF like the iShares Dow Jones US Healthcare Provider fund is a diverse mix of companies such as UnitedHealth Group, the largest U.S. insurer; Quest Diagnostics, a testing company; and Medco Health Solutions, a pharmacy benefit manager.

Medicare managed care coverage also continues to grow robustly, with 8.4 million enrollees in Medicare Advantage as of April 2011. That’s up 6 percent from the previous year, according to the Government Accountability Office. All told, there are more than 12 million beneficiaries in related Medicare managed care programs. Since the program is in fiscal trouble without tax increases or benefit cuts, policymakers may favor moving more patients into managed care.

Although I try to take a global view that discounts short-term market movements, there’s still a high dose of uncertainty in my overview.

Congress still needs to work on Medicare reform and find sustainable ways of funding Medicaid programs. The biggest unknown remains political risk and the composition and direction of Congress in 2013. Will it move to contract public programs and shift even more patients into managed care? Or will it shift in the opposite direction to lower costs even more with a single-payer model – probably the least likely scenario. The answer will shape the future of entire industries, so keep monitoring this fickle patient.

(Follow us @ReutersMoney or here. Editing by Beth Pinsker Gladstone and John Wallace)

(The author is a Reuters columnist and the opinions expressed are his own. For more from John Wasik see link.reuters.com/syk97s)

CHICAGO, June 22 (Reuters) – The one thing the Supreme Court
will have no impact on as it decides the constitutionality of
the Affordable Care Act is the immutable trend in U.S.
healthcare: the growing cost of caring for an aging population.

A handful of industries will remain profitable despite the
thorny politics of healthcare policy, and the best way to view
this volatile situation through the lens of stocks is in the
long term.

The annual growth rate in healthcare spending is expected to
remain around 4 percent from now until 2014, then ratchet up to
6 percent, according to recent forecasts by the Centers for
Medicare and Medicaid Services. In comparison, general consumer
prices are rising just under 2 percent on an annualized basis.

Other than burgeoning costs, there’s demographics. Some
10,000 baby boomers are turning 65 every day – a trend that will
continue until 2030, when boomers will comprise almost one of
every five Americans, according to the Pew Research Center.
Naturally, their healthcare needs will be increasingly costly
and complex. They will still demand specialized care for chronic
conditions, pharmaceuticals and acute care.

With those likely developments in mind, here are two sectors
I think will prosper.

PHARMACEUTICALS

It’s an undeniable trend that pharmaceuticals will continue
to be utilized as a way to lower overall healthcare costs. From
1999 to 2009 alone, according to the Kaiser Family Foundation,
prescription sales rose 39 percent, compared to general
population growth of 9 percent.

Only a large-scale government purchasing plan will pare
profits in this sector – a good idea for lowering costs, but
unlikely politically, at least in the next year or so. Yet as
pharmaceuticals and biotech drugs assume an even greater role in
managing chronic conditions and preventing surgery, look for
growth in this industry.

For a focus on pharmaceuticals, consider the SPDR S&P
Pharmaceuticals fund, which holds large manufacturers
like Eli Lilly & Co, Pfizer Inc and Abbott
Laboratories Inc and lesser-known biotech firms. A more
international portfolio can be found in the iShares S&P Global
Healthcare Sector fund.

MEDICAID AND MEDICARE MANAGED CARE PROVIDERS

Once the pariah of health consumers, managed care has
quietly been assuming a growing role in reducing healthcare
costs in public programs. Cash-strapped Medicaid programs, which
cater to the poor, have been accelerating the push to get more
patients into these plans and out of costly fee-for-service. At
present, there are more than 26 million Americans in Medicaid
managed care programs, according to the Kaiser Family
Foundation.

The only wild card preventing growth in this sector is
whether Congress will restrict or reduce funding for Medicaid,
although managed care is seen as a viable way of managing or
reducing costs.

If you just want to focus on healthcare providers, then an
ETF like the iShares Dow Jones US Healthcare Provider fund
is a diverse mix of companies such as UnitedHealth Group
, the largest U.S. insurer; Quest Diagnostics, a
testing company; and Medco Health Solutions, a pharmacy
benefit manager.

Medicare managed care coverage also continues to grow
robustly, with 8.4 million enrollees in Medicare Advantage as of
April 2011. That’s up 6 percent from the previous year,
according to the Government Accountability Office. All told,
there are more than 12 million beneficiaries in related Medicare
managed care programs. Since the program is in fiscal trouble
without tax increases or benefit cuts, policymakers may favor
moving more patients into managed care.

Although I try to take a global view that discounts
short-term market movements, there’s still a high dose of
uncertainty in my overview.

Congress still needs to work on Medicare reform and find
sustainable ways of funding Medicaid programs. The biggest
unknown remains political risk and the composition and direction
of Congress in 2013. Will it move to contract public programs
and shift even more patients into managed care? Or will it shift
in the opposite direction to lower costs even more with a
single-payer model – probably the least likely scenario. The
answer will shape the future of entire industries, so keep
monitoring this fickle patient.

CHICAGO, June 18 (Reuters) – Developing a currency strategy
for your portfolio is like playing a chess game in which the
pieces are the futures of entire countries. Will Greece be able
to form a government and get its act together to keep the euro?
What about Spain and Italy? With the embattled euro and dollar
under a perennial cloud, does it make sense to have currency
strategy for your portfolio at all?

If you’re heavily invested in the securities of one
denomination, adopting a currency hedge may make some sense,
although the direction of currencies is notoriously difficult to
predict. All denominations are subject to political risk, the
economic health of the countries backing it, inflation and
interest rates. And currencies don’t pay a quarterly dividend
like a stock can or have a fixed coupon like a bond. Their
values are determined relative to other currencies and vary
depending upon a number of economic measures. It’s a complex and
volatile brew.

Then, there’s always a concern about currency debasement, or
the fear that countries are printing too much money, which in
turn stokes inflation. While that’s not an immediate concern in
the U.S. or Europe now, it could be if those economies heat up
again. And it could be that conventional wisdom about a
currency’s decline will be wrong long term.

“I see a happy outcome for the euro,” says James Rickards, a
senior managing director with Tangent Capital in New York and
author of “Currency Wars.” “The Greeks want the euro. It will
come in for a soft landing.”

There are a number of ways to invest in currency movements,
although it’s unlikely that you can beat large institutions or
sophisticated trading programs in this $4 trillion daily market.
While it’s highly risky, there are some indirect ways of
benefiting from currency gains. The best way to adopt a currency
strategy depends upon how much risk you want to take and what
you need to accomplish. Here are four approaches:

1. Go long on a single currency.

This is where you wager that one currency will do better
than another. You’re subject to timing and selection risk and
past performance means very little and has no predictive value.
What currencies do you pick?

Let’s say you liked the Australian dollar – there’s a lot to
like about the Aussie buck since the country is rich in natural
resources relative to its population and has a thriving export
economy. You could invest in the CurrencyShares Australian
Dollar Trust ETF, which is up 12 percent for three years
through June 15. But its annualized standard deviation – a
measure of volatility – is 16.5. In comparison, a broad-based
U.S. bond fund like the iShares Barclays Aggregate Bond fund
has an annualized standard deviation of 2.7 with a
three-year return of 7.3 percent. Unless you want to concentrate
risk in a single currency, if you want less volatility with your
income, a plain-vanilla bond fund might be better.

2. Hedge or short.

If you have a large percentage of your holdings in a single
currency, you can buy an ETF to blunt that risk. Are you
extremely pessimistic about the euro? The ProShares Ultrashort
Euro provides a return two times the negative
performance of the daily currency movement. That means this
inverse fund will gain twice as much in value if the currency
declines against the dollar. This is the riskiest strategy. You
could lose all of your principal if you don’t know what you’re
doing.

3. Have currency baskets.

This is essentially a hedge against a single currency, using
several currencies to offset the overall risk. The Merk Hard
Currency fund, for example, invests is several
denominations to protect against the depreciation of the U.S.
dollar. You spread out your risk a little more than the
single-currency plays, but you’re still only investing in a
handful of major currencies.

4. Invest in non-U.S. stock and bond funds.

Unless your portfolio manager hedges for currency
fluctuations, when you invest in the securities or bonds of
other countries, your portfolio will be subject to currency
gains and losses. For most mainstream investors, global stock
and bond funds are probably the best approach since they offer
diversified portfolios that offer some income in the form of
dividends or yield. You also have the potential for capital
appreciation. Besides, you need to diversify out of your
home-country securities to reduce country risk. Two worthy
candidates include the PowerShares Emerging Markets Sovereign
Debt Portfolio and the Vanguard Total World Stock ETF
.

If you decide to invest in currency ETFs, keep in mind that
they are not only highly volatile, but more expensive relative
to diversified bond or stock funds. While you may think that
you’re investing in the next safe-haven currency, you may be
losing money along the way timing your decision and paying for
transactions and management expenses.

CHICAGO, June 15 (Reuters) – These days, lenders are
incredibly picky when it comes to customers. When I looked into
refinancing a few months ago, a mortgage broker asked for two
years of tax filings, and wanted my accountant to certify them.
Since the savings on a new loan would’ve been minor, I passed.

That’s not the advice you hear most, though, when it comes
to refinancing in today’s rate market. With 30-year loan rates
still under 4 percent, if you know you’re going to stay in your
home for a while – or need to cut payments on other properties
you own – don’t wait.

Unless the U.S. economy goes on life support again, it’s
hard to believe that rates will go any lower – in the June 14
Freddie Mac mortgage survey rates were 3.71 percent for 30-year
loans and 2.98 percent for 15-year notes. Until this week, those
averages showed a quiet six-week streak of record-low rates.

To put those rock-bottom rates in perspective, last year at
this time, 30-year loans averaged 4.5 percent. During the
meltdown year of 2008, they were 6.3 percent. In June of 2002,
they were 6.6 percent; 8.5 percent in 1992; 16.7 percent in
1982; and 7.4 percent in 1972. So there’s little argument that
we’re still experiencing the lowest mortgage rates in two
generations.

Yet it’s not always a good time to refinance. Here are some
key considerations:

1. What if your decision to refinance extends beyond
lowering the annual percentage rate and monthly payments?

Maybe your focus is still on equity appreciation down the
road. In one sense, refinancing affirms that you believe that
your home is still a worthy investment. That may not be the case
if the housing market takes a decade or more to heal or the U.S.
economy and job market in general are headed for meager growth
in the years ahead.

Recent history is not encouraging. When it comes to the
investment of homeownership, Americans got walloped between 2007
to 2010 as the housing market melted down. According to the
Federal Reserve, the median family’s net worth declined about 40
percent during that period, mostly due to home-equity
depreciation. That was the biggest free fall in net worth since
1989. How is your local market doing? Bouncing back or still
being hit by foreclosures, which depress prices?

2. Do you want to get into more debt?

By itself, refinancing typically involves closing costs that
are from 2 percent to 4 percent of the loan value. Many
homeowners don’t pay those costs upfront and add them to the
loan balance. Lower monthly payments aside, why add to your
mortgage debt if you’ve lost equity? Keep in mind that as you’re
refinancing, you won’t be able to write down the lost principal
- unless you’re on the brink of foreclosure and qualify for a
special government program such as HAMP or your bank approves
it.

3. Do you need to cut your losses?

Nearly every market poses a different argument for
refinancing. Again, if you think of your home as an investment,
you may not see any equity appreciation for years, although
prices may be on the rebound in the markets worst hit when the
bubble popped. According to a Realtor.com May survey, median
list prices have recovered 14 percent year-over-year in places
like West Palm Beach and up to 33 percent in Phoenix. Even Miami
is up 15 percent.

Other places are not so fortunate. Areas in Eastern
Pennsylvania such as Reading and Allentown are down 5 percent
during the same period. Chicago’s prices dropped nearly 2.5
percent. And Stockton, California, after suffering dramatic
price declines after the bubble burst, is still down more than 5
percent. Is the money you spend on refinancing costs sending
good money after bad?

4. Are you realistic about your ability to qualify for a
refi?

In the worst markets, refinancing may not even be possible
if your equity loss is too great or you’re underwater, that is,
your mortgage balance exceeds the market value of your home.
Most lenders won’t even take your application if this is the
case.

Those with less-than-stellar FICO credit scores or spotty
income won’t be offered the lowest rates. And you may even have
to pay points – a percentage of the loan value – to “buy down”
the rate even more. The low Freddie Mac rates quoted above, for
example, assume payment of 0.7 of a point. Clean up your credit
record if you can before you apply to boost your FICO score.

5. Will you even get a rate that’s worthwhile?

You won’t get the best rate if you fall into a number of
borrower categories. You have to watch out for surcharges in
loan rates called “loan level price adjustments.” For example,
say your FICO score is under 620 and you only have a five to
10-percent equity stake.

Loans underwritten by Fannie Mae, for example, will impose
an “adverse delivery charge” of 3.25 percentage points. You also
may be penalized for cash-outs, adjustable-rate loans,
manufactured homes, condos and investment or multi-unit
properties. So unless your credit score is above 700, your
income steady and you’re not buying properties subject to
surcharges, those bargain rates may be an illusion.

CHICAGO (Reuters) – Whenever the threat of an economic slowdown starts hulking around like a cranky bear, I look to essentials that are important to me as a long-term investor, like energy. Then I consider what investors need most while they watch share prices dip, and that is steady dividends.

Although I have severe reservations about energy companies’ role in global warming – they can be doing much more to promote clean/alternative energy – energy companies that pay healthy, consistent dividends still make sense. They will still make profits drilling for oil and natural gas far into the future, even in the face of falling oil prices.

Good examples of old, healthy dividend payers are Exxon-Mobil and Chevron, two of the largest energy producers on the planet. Even as oil prices gyrate, the total long-term global demand for oil and gas is increasing. And if you’re willing to hold onto these stocks, you can be rewarded over decades.

I’m always reminded of the stock my grandmother bought in Royal Dutch Shell, which she purchased two generations ago and my father still holds. As a single mother and later when she retired, she appreciated the dividend payments.

Dividends in the oil patch have typically been pretty consistent. Chevron, for example, is one of those unheralded producers that has not only paid a continuous dividend for the past century, it has boosted its annual payout for the past quarter century. Last quarter alone, Chevron raised its quarterly dividend 11.1 percent.

Even with the turmoil in Europe, the punchless domestic job and housing markets and other simmering economic fears, the U.S. oil and gas industry is humming along. Thanks to discoveries in recent years, shale gas production jumped 50 percent between 2008 and 2009 alone, according to the Energy Information Administration. Overall, oil and gas production jobs have increased by 28,000 between 2007 and 2011, according to a recent Brookings Report.

Ideally, the best companies to own are those with consistent cash flow, earnings and dividend growth. Dividends not only compound in your portfolio over time – if you’re re-investing them – they give you an incentive to hold onto the stock.

If you want to buy individual stocks and hold them, make sure they offer a dividend reinvestment plan that allows you to re-invest dividends and buy new shares at no cost. But you would need to buy and hold more than a dozen or more companies to diversify across industries, countries and sectors to find the best dividend payers.

If you want a representative energy portfolio instead, the iShares Dow Jones US Energy Sector ETF is a good choice. It holds ExxonMobil, Chevron and a host of major producers and related companies. A good alternative is the Energy Select Sector SPDR.

Despite their long-term growth prospects and dividend records, though, the energy sector’s share prices will still get battered during any economic slowdown. For that reason, it’s a better idea to invest in a broader selection of dividend achievers. Look to the S&P High Yield Dividend Aristocrats Index as your guide, which was only down 3.28 percent quarter-to-date through June 6, compared to negative 6.22 percent total return for the S&P 500 Index.

WHAT THE FUTURE HOLDS

Skittish about the energy sector’s short-term prospects? Finding more crude involves “small wars, deep water and harsh climates,” said Steve Coll in a speech at the Chicago Council on Global Affairs on June 6, author of “Inside Big Oil: ExxonMobil and American Power.” “They need every barrel of oil and gas they can book.”

And over a longer amount of time, burgeoning populations and energy-intensive escalation in the living standards of developing countries will grow demand while oil reserves will become harder to produce. Drillers will need to go into Arctic waters and venture further off the continental shelf and find oil in ever-deeper waters.

And long term, nevertheless, it’s clear their products will be in high demand for decades to come. If you can turn away from the increasingly dismal global economic headlines, energy stocks can prove to be decent long-term holdings over time.

While I’m still bullish long-term on energy (even more so for clean alternatives), energy funds will give a little more protection against sector risk, or the chance that you’ll lose money from being overexposed to the wrong industries at the wrong times. Even better are dividends produced from stocks across a broader swath of industries such as utilities, financials, health care and consumer goods. A larger array of dividend payers can be found in the iShares Dow Jones Select Dividend Index, which has less than 4 percent of its holdings in energy stocks. Nearly half the fund is invested in utilities and “consumer defensive” stocks.

As with obsessions with single stocks, you can be too much in love with one industry. There can be safety in numbers.

(The author is a Reuters columnist and the opinions expressed are his own. For more from John Wasik see link.reuters.com/syk97s)

(Follow us @ReutersMoney or here. Editing by Beth Pinsker Gladstone and Kenneth Barry)

CHICAGO, June 4 (Reuters) – To maintain your mettle as an
investor in the face of mixed economic signals, you have to be
able to be able to do what F. Scott Fitzgerald said was the test
of first-rate intelligence: be able to hold two opposing ideas
in your mind and still function.

On one hand, it’s counter-intuitive to buy into a decline.
It doesn’t feel right, although you will get better prices on
quality stocks. The standard approach, which I suspect most
investors choose, is to retreat to the sidelines.

If you can take the risk, keep investing in solid companies.
If you need growth in your portfolio, don’t pull out; embrace
the long-term prospects of owning companies that produce
consistent profits and dividends. A good place to look for
profits are U.S. consumer staples and discretionary stocks.
These stocks are among the most profitable in the world, have
paid robust dividends and continue to benefit from the
snail-like U.S. recovery that may be “de-coupling” from Europe
and not moving in lockstep.

How can this be possible in the face of U.S. consumer
confidence falling to its lowest level in four months in May,
fears of a global slowdown roiling stocks worldwide and pathetic
employment growth?

My theory is based on this: Slowly recovering U.S. home
prices signal that the dismal housing recession may have
bottomed out. When Americans absorb that reality, they will
start to buy homes, cars, appliances and other consumer goods.
And with the easing of oil and gasoline prices, more money will
be spent on these other items. We’ve seen some of this activity
recently in May retail sales, which were stronger than expected.

Corporate profits have already reflected the rebound,
although employers have been extremely reluctant to hire based
on the short-term anxieties in Europe and slack overall demand.
Dividends, based on profits, are also robust.

S&P Capital IQ noted in its May 30 sector outlooks report
that this year “estimated S&P 500 dividend growth will be 18.4
percent.” Investors hungry for yield have embraced dividend
payers, spurring a 10.8 percent and 4 percent year-to-date
increase in consumer discretionary and staples, respectively
(through May 25).

There’s also a backstop to this optimism. S&P Capital IQ,
among other market observers, is a firm believer in the
“Bernanke put,” or the notion that the Federal Reserve will
continue to support the U.S. economy through “quantitative
easing” of keeping short-term rates low if growth slows again.

One way of tracking consumer discretionary stocks – who make
products you do not need but will buy with extra cash – is
through exchange-traded funds like the Vanguard Consumer
Discretionary ETF. The fund owns more than 300 companies
like McDonald’s, Amazon.com, Comcast,
Home Depot and Starbucks. These are pure
consumer liquidity plays.

When the job market stabilizes even more and housing prices
start to show life again, a wealth effect exhorts Americans to
spend again on non-essential items. A good alternative to the
Vanguard fund is the Consumer Discretionary SPDR.

Consumer staples, in contrast, tend to be less-glamorous
items that people tend to still buy even during economic
downturns. There’s a little overlap with discretionary stocks,
but it’s unlikely that consumers cut back on things like
tissues, toothpaste, drugs or discount stores when times are
tight. Household goods, packaged foods, soft drinks and tobacco
products tend to dominate this sector. When the general market
swoons, it’s also a good time to buy.

Not surprisingly, consumer staples are sold by some of the
oldest and strongest companies in the U.S. such as
Colgate-Palmolive, Procter & Gamble and Kraft
Foods. You can find them packaged in ETFs like the
Vanguard Consumer Staples ETF or the First Trust
Consumer Staples AlphaDEX ETF.

There’s an even better argument for a broad-based approach,
because if you chase individual sectors to find growth you face
additional risk — you can often guess wrong. The SPDR Dow Jones
Total Market ETF will virtually cover every U.S. stock.

Of course, there’s always room in my theory to be wrong.
Housing will take a long time to recover. The job market is
severely lagging when it should be in a healthy rebound. And
there are always surprises when you least expect them in an
election year.

CHICAGO, June 1 (Reuters) – Finding consistent total stock
returns has always been a challenge. But even as the euro zone
beast continues to flair its nostrils and U.S. employment
wheezes, there are stocks that are worthy contenders,
particularly ones that pay dividends. While they don’t eliminate
market risk, dividends can bolster total return in skittish
equity markets. And some of the best sectors for high-dividend
players are far from Wall Street.

For long-term investing, think commodities, energy,
utilities and non-banking financial services. Banking is still
touchy, but insurance is a safer bet.

Established, brand-name stocks often pay large dividends,
but that doesn’t mean they should dominate your portfolio. The
Admiral Group, a U.K.-based auto insurance company, for
example, is hardly in a league with the oil producer Royal Dutch
Shell in terms of name recognition. Yet the insurer is
the top holding in the SPDR S&P International Dividend ETF
, paying a 5.38 percent dividend yield as of June 1.

Shell, by the way, is no slouch in the dividend department
either, paying 5.53 percent as of the same date. Europe’s
largest oil producer reported that its earnings were up 11
percent in the first quarter.

The international dividend strategy is often rooted in
sectors in which profits are consistent and growing. That
translates into steady dividend growth year after year, although
the sectors that are favored for stock-price appreciation will
vary.

Let’s say you were long in commodities, which isn’t a bad
play considering the demand for raw materials from developing
countries. Then you’d want a company like BHP Billiton Ltd.
), one of the world’s largest natural resources
companies. BHP mines aluminum, copper, coal, iron ore, nickel,
silver and uranium and also has oil and gas reserves.

Another growth sector is telecommunications, particularly in
emerging economies. China Mobile, the largest
cellphone carrier in the People’s Republic, has more than 600
million subscribers – and is growing. That’s roughly twice the
population of the U.S. already.

A key part of the global dividend strategy is to stay in
sectors that are likely to continue dividend growth. That’s why
exchange-traded funds make the most sense when investing in
these companies. The funds can hold broad indexes of dividend
payers so you don’t have to guess which companies will maintain
or raise their payouts. ETFs also blunt risk, since unusually
high dividends can be a sign of a company’s financial distress.

To find dividend players in emerging markets, I suggest the
WisdomTree Emerging Markets Equity Income fund, which
gives you exposure to China, Brazil, Taiwan and Turkey. Fund
managers look at all sizes of companies and base their
selections on an index of companies that have paid at least $5
million in dividends over the past year. An alternative is the
SPDR S&P Emerging Markets Dividend ETF.

If you prefer a focus on more developed markets, then
consider the iShares Dow Jones International Dividend Index ETF
. The fund invests in companies among the top 100
dividend payers that have had payouts in the previous three
years. A similar fund is the PowerShares International Dividend
Achievers Portfolio.

Many, if not most, of these funds, it should be noted, were
touted last year as part of a growing group of “low-volatility”
stock funds. While I think that has been a misnomer because it
implies that these vehicles won’t be hit by general market
declines – they certainly will – they deserve a place in your
portfolio.

When selecting a global dividend-stock fund, keep in mind
that they won’t insulate you from market risk and they are not
bond funds.

These funds can be volatile and will be impacted if more
European countries slip into recession, the U.S. falters or the
Eurozone banking crisis isn’t resolved. They also are subject to
sector risk. If they are over concentrated in say, energy, and
that sector is sold off in a market correction, then you will
see declines in share prices. Buy them to augment your current
stock positions and to boost income, but they shouldn’t be core
holdings.

CHICAGO (Reuters) – It’s already shaping up to be a summer of discontent for investors, so it’s time to manage your expectations. To a global investor, there are conflicting signals everywhere: Although the U.S. economy continues to chug along like a tugboat, the “fiscal cliff” of massive tax increases and budget cuts still looms at the end of the year. Then there is the euro zone opera with the fat lady singing in Greece, Spain and elsewhere.

Do you stay out of all stocks and cower in bonds? What about the possibility of rising inflation in the United States and recession in Europe? How do you avoid the “tail risk” of multiple sour scenarios unfolding the way they did last August?

While it’s hard to predict the cumulative effect of political and financial uncertainty, you can adjust your attitude accordingly so that you deal with what will come. Here are some new approaches:

1. Earnings Expectations Aren’t Worth Worrying About

Wall Street has always been in the business of selling expectations, not managing them. So when a Facebook comes along and disappoints, why should we be surprised?

Millions get sucked into this roulette game all the time. Will earnings hit or miss analysts’ estimates? If you’re a long-term investor and not a trader, earnings estimates shouldn’t matter – if that stock is worth holding long-term. Maybe you should ignore earnings estimates from analysts altogether.

Over the last three years, according to Fortune magazine, an average of 74 percent of companies in the S&P 500 beat estimates. In the first quarter of this year, though, the median two-day gains after earnings reports was zero. So the general impact of earnings surprises on the market has been nil lately. A more important indicator for me is the company’s dividend. Did it raise or lower it? Companies that share earnings in the form of dividends typically have more downside protection and provide more income for you over time if you’re a patient shareholder.

2. Stop Chasing Facebooks

With any new stock, your expectations should be low, not high. Start-ups have tremendous business risk. And if expectations are high, their capacity to disappoint is even higher.

You shouldn’t pin your hopes on one stock anyway. Charles Wheelan, a University of Chicago economist who wrote the recent book “10-1/2 Things No Commencement Speaker Ever Said,” advocates investing in diversified index funds that cover global stock and bond markets. “Don’t try to be great” is one piece of his advice. It is unlikely you are going to hit a home run with one stock or fund. Consider emerging markets, dividend-paying stocks, real-estate investment trusts and a variety of bonds.

3. Jumping Off the Fiscal Cliff

This is the scariest of all the doomsday scenarios because it assumes Congress will do nothing early next year to avert the mother of all personal-income tax increases and more than $600 billion in federal budget cuts.

The Congressional Budget Office estimates that inaction will plunge the United States into recession again, contracting the economy into a negative growth rate ranging from 1.3 to 2.3 percent. Considering that Congress went through this charade last year and has known about this “taxmageddon” prospect since last August, it seems unlikely that they will plunge markets into despair again and trigger another downgrade of U.S. debt.

If you’re incredibly pessimistic, then buy gold and U.S. Treasury bonds. The political impetus, though, is for some reasonable election-year compromise that won’t deep-six the economy and markets again, so it’s too early to hit the panic button.

4. Raise Your Own Expectations.

Finally, some good news. Want to buy a house? The great housing recession may have bottomed out as both sales and prices rose in April while mortgage rates remain low. It’s too soon to tell if this trend has legs, but you can still find some bargains.

Although there’s always a limit to how much your portfolio can appreciate given constrained market conditions, there’s no limit on how much you can learn. So invest in your human capital. Learn a language. Take a cooking class. Update your job skills.

This could be a great summer if you focus inward and discover how to grow your mind instead of worrying about the scorched-earth politics of pervasive pessimism. Dampen your expectations for financial markets, but raise them for yourself and your family. There’s no downside there.

(Follow us @ReutersMoney or here; Editing by Beth Pinsker Gladstone and Matthew Lewis)