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Is it over yet?

An earthquake, tsunami and nuclear crisis in the Pacific, political uprisings in the Middle East, a debt crisis in Europe.

The United States lost is sterling credit rating, thanks partly to gridlock in the Beltway. Occupy Wall Street captured, and tried, our attention.

For most of the year, our disposable income fell behind price increases, especially for groceries, gas and clothing. The foreclosure crisis did not abate, the housing market did not rebound, and the job market is nowhere near as big as it was before the recession.

If the economy is still recovering, it's keeping an awfully low profile.

I'm not much for predictions, and one-year retrospectives mean little in our long lives. But it's worth revisiting lessons learned from the highs and lows of 2011.

Vexed by volatility

The Standard & Poor's 500 stock index swooned between 1,075 and 1,370. Over a 17-day period in July and August, it fell more than 220 points -- nearly 17 percent.

Yet the index is up 0.61 percent for the year through Dec. 23.

"This past year has been without a doubt the most difficult decision-making time for clients and the markets that I've ever seen," said John Ritchie, owner of Great Northern Asset Management in Vancouver.

The stock market likes certainty. But with what's going on in Europe economically and in the U.S. politically, certainty is as difficult to grasp as a Timbers season ticket.

"Unfortunately, things could get worse before they get better," said George Hosfield, chief investment officer at Ferguson Wellman Capital Management in Portland.

Lesson learned: Expect the ups and downs to continue. Learn to tune them out or to talk about them with people you trust. Remember, you're saving for the long haul.

Index funds win

You were better off if you invested in passively managed index funds. According to Morningstar, the average domestic stock fund lost 2.6 percent this year through Dec. 23. But large company stock indexes were positive. Investing in Vanguard's 500 Index fund (VFINX) or Fidelity's Spartan 500 Index (FUSEX) would've gotten you close to that.

The SPDR Dow Jones Industrial Average Exchange Traded Fund (DIA) was up 6 percent as the 30 largest U.S. stocks outperformed those of smaller companies.

Actively managed U.S. taxable bond funds fared even worse. They had risen 4.2 percent through Dec. 20, but comparable bond index funds had grown 9.7 percent, according to Morningstar.

Sure, you can find managed stock funds that do extremely well: Dreyfus Appreciation (DGAGX). Parnassus Equity Income (PRBLX). Vanguard Dividend Growth (VDIGX or VIG). Sequoia (SEQUX). Picking them ahead of time is the challenge.

Some say it's a stock-picker's market. Yet this year, the average professional fund manager needed quite a handicap -- one you can't afford to extend.

Lesson: Use stock and bond index funds for the bulk of your retirement savings; use active funds for your play money. For more, read my series on asset allocation from early this year and my column on passive investing from a year ago.

Hacked

It was the year of the data breach. Thieves absconded with email addresses, names and credit-card numbers from HealthNet Inc., Sony PlayStation Network and Portland Center for the Performing Arts, to name a few. Even an Oregon Insurance Division employee lost a laptop with insurers' customer identities. Locally, Wells Fargo fought a phone-phishing scam that used its name to get people's personal information.

Lesson: Stay vigilant. Check your bank statements each week. Don't pay for ID theft protection or insurance. Do consider a security freeze on your credit report. Sign up for mobile or email security alerts from your bank. Check all three credit reports once a year at www.annualcreditreport.com.

Dis-interest rates

The Oregon College Savings Plan -- the one not sold by advisers -- cut expenses twice this year. After the second reduction, which takes effect at the end of March 2012, investors will pay anywhere from $3.30 to $10.30 a year for every $1,000 they invest in the plan, depending on the fund.

But the first fee reduction didn't come without some embarrassment. The Oregonian pointed out in April that the plan's conservative money market had actually lost money for more than a year. Its fees were simply higher than the rate of interest paid by its underlying holdings.

Plan manager TIAA-CREF responded by doing what most of the rest of the financial industry had done more than a year earlier; it eliminated its management fee on the fund.

The fund is still down 0.10 percent for the year, but that's better than the negative 0.30 percent return it had in May. Such is saving in this dis-interested environment.

Lesson: It's difficult to earn a return anywhere these days without taking on undue risk. Consider U.S. Series I Savings Bonds, whose rates adjust with consumer prices, or stable value funds found in many 401(k)s.

Where's the paycheck?

Incomes increased 3 percent through September. But prices for food consumed at home jumped 6 percent over the year ending in November, the Labor Department said. Gas prices rose 20 percent. The pressure to spend for the holidays caused our savings rate to drop late in the year by about one-third.

Lesson: It's getting tough to save as prices for routine purchases go up faster than our incomes. Try stashing 2 percent of each paycheck -- that's the amount you gain from the likely-to-be-extended payroll tax cut -- in savings. Use automatic deposit features offered by your bank or credit union so you aren't tempted to spend it.

Bonds

In February, I said interest rates "have nowhere to go but up." Ritchie at Great Northern loves to remind me of this. Why? Rates on bonds have actually declined considerably since then.

The yield on a 30-year Treasury bond fell from 4.67 percent on Feb. 14 to 2.76 percent on Oct. 3. That's about what a seven-year bond paid at the start of the year.

Lesson: Don't put too much stock in predictions.

And best wishes for 2012.

(c)2011 The Oregonian (Portland, Ore.)  

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