On money

Hindsight is fine, but balance is better

Personal Finance editor HELEN HUNTLEY E-mail: Click here Archive

If you own lots of utility or energy stocks, you're probably feeling great about your investments this year. If you don't own those stocks, you're probably wishing you did - and maybe you're even tempted to load up on them now.

Hindsight is great, isn't it? You can determine exactly what you should have done. And then you wonder if it isn't too late to do it now.

Sherri Stephens, a financial adviser with Raymond James Financial Services, says investors have something in common with customers who realize they've gotten in the slowest checkout line at the grocery store.

"When your line stops, do you get out of that line and go to the next one?" she asks. Of course, if you do, your new line is likely to stop while the one you were in starts moving.

Stephens, who lives in Flint, Mich., was in the Tampa Bay area recently for Raymond James' annual women's symposium, a conference for the company's women brokers to learn more about the securities business and to swap success stories and sad tales.

High on many lists of woes were clients who see double-digit returns as their birthright and who want to chase the latest hot investment. Education is the tool brokers employ to try to stop them.

If you've ever been tempted to chase, take a look at the Callan Periodic Table of Investment Returns (www.callan.com/resource/) a favorite of brokers and of mine. It's a colorful display of year-by-year rankings of returns for various asset classes. The first thing you notice when you look at it is the variability; no two years are alike.

You can see, for example, that in 2002, bonds were the best performer and small cap growth stocks were the worst. In 2003, they switched places. While such major moves are not unusual, they also are not predictable. Large cap growth stocks had four stellar years in a row in the 1990s and five lousy years in a row in the 2000s. Foreign stocks went from worst (1992) to first (1993-94) and then back to worst (1995).

For most of us, the only way to deal with this unpredictability is to hold a broadly diversified portfolio. Having a portfolio spread across many asset classes is like fielding a baseball team, Stephens said. You have players in the outfield and at each base because "you don't know where the ball will be hit."

Because some of your holdings will be winners and some will be losers, your overall portfolio won't deliver huge returns. However, it will capture some of the returns of hot sectors and it won't crash based on the poor performance of the worst.

If you have reason to think a particular sector is going to do well, I think it's perfectly fine to play that hunch with some extra dollars. But it's not smart to bet everything on one or two sectors in case you are wrong. Remember tech stocks?

I heard about using a quit-claim deed to leave my house to my children. Is this a good idea?

No. In fact, this is a way of casting a cloud over the title of your property, particularly since you probably are planning to stash the deed away and not record it.

"Quit-claim deeds are very suspicious to a title company," said Kevin Hussey of Stewart Title in St. Petersburg. "Underwriters don't even want to insure a title (conveyed by quit claim) unless we can do the research. It raises a red flag and we have to really scrutinize what took place."

A lengthy time lag between execution of a deed and its recording raises the question of whether the deed was ever delivered.

"Sometimes people hold a quit-claim deed in a safe deposit box and never deliver it," Hussey said. "If there's no delivery, there's no transfer. How do we know it was delivered?"

An unrecorded deed can be a catalyst for family disputes - as in "Dad never gave him that deed" - or even lead to claims of multiple deeds, forgeries, back dating and the like.

Even when they are delivered, quit-claim deeds are inferior to warranty deeds. In a quit-claim deed you are relinquishing any interest you have in a property, but you are not claiming to be the owner.

If you want to give your property to your children now, the right way to do it is with a warranty deed, properly recorded. However, that unnecessarily creates property tax and gift tax issues. The simplest thing is to die owning your home and let your children inherit it.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

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