Are you behaving wealthy? (Image: Thinkstock)

As 2012 begins, you are probably reflecting on different facets of your life and may even be drafting a plan to make improvements.  In fact, you may be making a renewed commitment to get your financial life in order this year.  If financial independence is your goal, let me suggest the following quick assessment to get you started on your journey to wealth.  Grab your purse and answer these seven questions to assess whether you are a woman behaving wealthy.

1.  How many different credit cards do you have in your wallet?

Count the number of credit cards (exclude your debit cards).  If you have more than one credit card, then you are likely overspending and incurring debt.  Debt is the enemy of wealth and financial independence.  By spending tomorrow’s money today, you are giving up your future freedom.  On the other hand, financial freedom is built from consistently spending less than you earn.  Thus, a woman behaving wealthy spends on the basis of what is important and pleasurable to her on her current income.  Are you on the road to achieving wealth?

2.  What is the value of your purse and its contents?

Add up the value of your purse and its contents.  For example, if your purse costs $500, your smart phone costs $350, your wallet costs $200, your cosmetics cost $250, and your iPad costs $750, then the value of your purse and its contents is $2,050.  Now, ask yourself if you have invested that amount into savings or retirement accounts over the last month?  In this example, if you have invested at least $2,050 in the last 30 days, then you are building wealth.

3.  Is your cash organized by denomination and facing the same way?

Open your wallet or purse and look at how your cash is organized.  Cash arranged orderly is characteristic of a person whose financial life is organized.  However, cash bills in disarray reflect a disorganized financial life.  As you know, focusing through clutter and chaos is difficult.  Be a woman behaving wealthy and organize your cash, financial files, documents, and accounts.

4.  Do you have an up-to-date daily, weekly, or monthly to-do list in your purse?

Whether you maintain your to-do list in a traditional day planner or in an electronic gadget is not important.  What is essential is that you have a plan for what you would like to achieve.  A current to-do list reflects that you have identified, quantified, and prioritized your financial goals.  Researchers have proven that you are 45% more likely to achieve your goals if you write them down.  Are you on the road to achieving your goals?

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5.  Do you have protection plans on the electronic devices in your purse?

Protection plans protect you from loss or malfunction of your gadgets.  Let’s say that you lost your $300 smart phone and you need to replace it.  With a protection plan, you have the option of receiving a free replacement or one for small fee.  Protecting your gadgets is analogous to protecting your assets.  Everyday, you face innumerable risks and, thus, some degree of risk exposure.  A woman behaving wealthy protects her assets – loved ones, income, health, and property.

6.  Do you have an emergency card in your purse?

An emergency card details your healthcare emergency names and numbers (e.g., hospital, doctor, dentist, pharmacy, health insurance plan, insurance policy).  It also holds your family’s contact information (e.g., spouse’s, parent’s, and kid’s contact numbers) in case of an accident.  The best time to prepare for an emergency is before it happens.  If you have an emergency card, then you have taken steps to create a preparedness kit.  Women behaving wealthy are also prepared for the occurrence of other unfortunate instances.  Have you selected a custodial and financial guardian to care for your children in case a tragedy befalls you?  A woman behaving wealthy has a plan in place that protects her loved ones in the event of misfortune.

7.  Are your receipts and important papers (in your purse) organized by category?

The receipts and important documents in your purse can represent additional income and savings for you if you apply them to decrease your taxes.  Many purchases are potential deductions from and credits to income taxes.  By consistently categorizing the expenditures you make that are potential deductions and credits, you are employing tax-reduction strategies to increase your income or wealth.  Taxes are another detour on the wealth-building journey, as they erode your investing power.  A woman behaving wealthy has the objective of retaining as much income as possible, which can then be redirected to more savings.

After Peeking in Your Purse, are you a woman behaving wealthy?

Congratulations are in order if your answers to six or seven of the above items indicate you are on the journey to wealth! However, if your purse audit suggested that you aren’t quite on your desired road to financial independence, don’t worry! Take action today and transform your financial life by completing Women Behaving Wealthy’s FREE Wealth Assessment at www.womenbehavingwealthy.com.

Dream it.  Plan it.  Live it.

Wealthy Women are rarely born that way. Most wealth is created. Robin A. Young creates Wealthy Women. It is Robin’s mission to educate and empower women to embody the necessary habits that create wealthy lives. Hence, Women Behaving Wealthy™ was born. Over Robin’s 12-year career as a Wall Street executive and financial advisor, she has adeptly integrated her academic training and investing experience with sound financial principles and a unique customized approach. This approach has allowed her to successfully manage the portfolios of over 500 millionaires and hundreds of other investors.

“For at least the last five years, my investments have lost money or been stagnant—even before the economic downturn,” says McMullen of his thrift savings plan, Roth IRA, and the mutual funds in his brokerage account.

He was so discouraged during the Great Recession of 2008–09 that for several months he stopped contributing to his brokerage account. “I watched it go as low as $14,000 at one point, when it had been worth $28,000,” he says. “I wanted to pull out all my money to protect it from a complete loss.”

But McMullen, who spent several years in the Armed Forces, is not one for backing away from challenges. He knows discipline gets results, and socks away $400 a month into his Roth IRA and about 10% of his salary of approximately $75,000 into the retirement plan at work.

He’s counting on these investments to fund his dream of being able to retire by age 55. His other goals include having the financial wherewithal to travel abroad once a year, and save for the college education of his 1-year-old son.

McMullen, a lieutenant in the United States Navy, serves as a naval science instructor for the University of South Carolina’s Naval ROTC unit. Although he offers guidance to students, McMullen admits that he also needs direction, “so that I can improve the performance of my investments and get the kind of growth I’m looking for.”

For the most part, his finances are on track. He has $37,000 in a money market account (which also represents his emergency funds), $5,300 in checking, additional savings of $3,000, and $92,000 invested in equities. He’s not drowning in debt—his only obligations are $2,300 for furniture, his car loan of $23,000, and $111,000 for his two mortgages.

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McMullen concedes, however, that his expenditures could be better organized: “I don’t track daily, small expenses very well. I put most everything on my American Express, so I can see where I spent my money. But with so many purchases, when I get my statement it’s overwhelming. I haven’t updated my budget in awhile.” Some of his larger bills are set up on automatic bill pay to eliminate guesswork.

Motivated by his son, McMullen is looking to fine-tune his approach to saving and investing. “I want to be able to start saving for his education, not just college, but maybe during his formative years. I want to be able to handle whatever life throws at me financially.”

The Advice
Black Enterprise and Robert Rowell, financial adviser and vice president of investments for Wells Fargo Advisors L.L.C. in Charlotte, North Carolina, devised a plan to help McMullen get the most out of his  investments and reach his financial goals.

• Diversify portfolio: McMullen’s track record calls for a closer look at his holdings. “He has all his Roth IRA contributions in large-cap stocks. He has all his eggs in one asset class and is missing out on other asset classes, such as [midcap], small-cap stocks, real estate securities, emerging markets, commodities, high-yield bonds, international stocks, investment grade bonds, etc. Rowell recommends putting 65% in equities or stocks; 32% in bonds or fixed income; 2% in commodities; and 1% in cash alternatives. “From one year to the next, one class can have a higher rate of return, and you don’t want to miss the growth opportunities,” explains Rowell. He also recommends that McMullen max out his thrift saving plan contributions and make sure he has a broad brush of assets, including bonds and international investments.

• Reinvest dividends: McMullen was so disappointed with the lack of growth in his brokerage account that he started receiving dividends. Rowell advises that he reinvest them. “When they are paid in a down market, you are more likely to invest at cheaper prices,” says Rowell

• Build savings for son’s education: Rowell suggests two options: a 529 plan or the Uniform Gift to Minors Act. With a 529 savings plan, your investment grows tax-deferred and withdrawals are tax-free, as long as the money is used for college-related expenses. The UGMA allows money or other assets to be given as a gift to a minor child while you maintain control of it. The money doesn’t have to be used only for college, Rowell says.

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“Jeremy seemed to like this because the money could be used for many purposes. He should explore the trade-offs of both,” says Rowell, who recommends McMullen talk with a tax professional to help him make a choice. Rowell suggests using the $2,000 contest winnings to seed the college fund and then saving $100 a month systematically. If he starts with $2,000 and adds $100 a month, assuming a 6% average rate of return annually, he would have nearly $40,000 in 17 years.

• Protect and prepare for the future: While McMullen has a $400,000 life insurance policy through the Navy, he’s vulnerable. “He should consider an additional, outside policy. He recommends that McMullen consider an $800,000, 30-year policy, which would cost $80 a month. “He’s young, healthy; a term policy would be inexpensive and help take care of his son’s needs,” says Rowell. “He has a 1-year-old son and no will. If something happens to Jeremy, the state will determine what happens to his son. He needs to speak with an attorney and get his will and trust done.”

Rowell also suggests McMullen consider buying a long-term care policy now obtain disability insurance through his employer.

• Tighten budget: There are several online tools offered by Wells Fargo or websites such as Mint.com that will help keep him on track to meet his financial goals. Rowell recommends McMullen find a good financial adviser and meet at least once a year for an annual checkup to determine adjustments to his finances.

–By Karen Thomas

Since hindsight is 20/20, we can look back at predictions to check how reliable they have been. In his 1998 book Roaring 2000s, best-selling financial author Harry S. Dent Jr. wrote: “We should see a Dow of at least 21,500 and as high as 35,000, as the baby boomers and recent wave of immigrants move into their peak spending years around 2009.” Years ago the inimitable financial television host Jim Cramer wrote: “Housing bubble? What housing bubble? The signs are in place for a further run-up in real estate.”

Then a half-decade later—with the housing bubble rapidly deflating—Federal Reserve Chairman Ben Bernanke announced: “I don’t anticipate any serious problems . . . among the large internationally active banks that make up a very substantial part of our banking system.” Ouch! The point is not to pick on Dent, Cramer, and Bernanke, but rather to note that even smart, well-informed people doing their best can be off the mark since the future is far less predictable than we would like. To steer clear of potentially problematic advice, I have a few rules of thumb.

When looking for information about the road ahead, try to uncover the “how,” not the “what.” In other words, rather than latch on to a specific market call, figure out what data supports the thesis. For instance, how will U.S. stocks fare going forward? I don’t have one number. Rather, I think a two-pronged approach will help uncover the likely direction: What is the long-term return of the asset class, and what do recent returns suggest? Over the past 85 years, stocks have gained, on average, 10% annually. While stocks have gained 9% annually for the past quarter century, the last decade has produced poor performance: stocks have averaged only 3%. Many simply assume that the pain will continue, but reversion to the mean—which holds that after periods of extremity markets tend to go back toward trend—says the opposite. The market is more likely to see double-digit returns over the next decade or so rather than single-digit growth or especially a negative return.

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Another mental tool that can be very helpful is considering the potentially negative repercussions of being wrong.  For instance, houses cost less than they have in recent history—likely close to a bottom—and borrowing burdens are lower than they have  been for decades.  So, I would argue it is a good time to buy a house if you can afford a 20% payment, and expect to stay in  the home for five years or more.  Even if prices do keep falling, there is no damage so long as you stay in the house and keep current on mortgage payments.

Finally, the long term trumps the short term, especially when financial assets are volatile. If you have read a magazine or watched television in the last couple of years, you know gold prices have shot to the moon. Specifically, over the last three years, gold has increased at a remarkable 29% per year. Many are suggesting you should hop on the bullion express. But wait: Over the past 25 years, the annual return for gold is just 6%, well below the 9% return on stocks for the same timeframe. And the price of gold can just sit there for very long periods without moving upward (which, coincidentally, is what gold itself does—it just sits there). Indeed, from March 1987 to May 2005 the return on gold was 0%.

These are just examples; they’re not meant to serve as the three key recommendations for the year. Rather they are meant to show how low-key, rational, well-informed thinking can help guide you on your path to financial independence. Ultimately the time-tested truisms of finance should serve as starting points no matter what year it is: spend less than you make; maximize your tax-advantaged investments over the long term; stay away from fads; and lean moderately against conventional wisdom rather than following the crowd. If you’re able to do these simple things, chances are you’ll create wealth more dependably than those who just listen to number-tossing experts at the beginning of the year.

Meanwhile a number of factors have pushed REITs upward: Through Nov. 30, 2011, the S&P Retail REIT Index was up 8.7%, compared to 0.8% for the S&P 500. What is most important is yield, especially when bond payouts remain low. By law, REITs have to pay out 90% of their profits to investors. McMillan reports REITs yielded 3.6% at the end of November 2011, compared to 2.1% for the S&P 500.

Consumer finance companies have seen signs of improvement, too. S&P looks for personal consumption to rise 2.3% in 2011 and 2.2% in 2012. What’s more, says McMillan, finance companies have taken steps to protect themselves by increasing loss provisions. The expectation is that charge-offs will drop as well in 2011 and 2012, even with persistent unemployment. Put it all together, and it makes sense that an S&P index of consumer finance companies rose 11.9% from Jan. 1 to Nov. 30 in 2011.

1 SIMON PROPERTY GROUP INC. (SPG) is one of the largest shopping center operators in the U.S. The company owns large malls and outlet centers in or near major markets such as New York, Miami, Atlanta, Houston, and Los Angeles. We think the company will see revenues increase 7.4% in 2011, and another 4.3% in 2012. Mall construction rates have fallen and that keeps supply in check relative to demand from retailers, which in turn pushes rents higher. Simon owns high-quality properties and the REIT’s geographic diversification shields it from weakness in any one regional market. The stock yields 2.8% and we expect Simon’s dividend to be raised. We hold a 12-month price target of $142 for Simon shares.
PRICE AT REC.: $122.97  •  P/E: 41.13

2 CBL & ASSOCIATES Properties Inc.  (CBL) is a REIT that mostly owns malls and shopping centers in the Southeast and Midwest. The company has done well targeting middle-market areas such as St. Louis. We see 2011 revenues climbing 2.4% as occupancy rates remain healthy, as they’ve remained above 90% in 2011. CBL has also seen robust rent increases—8.2% during the past third quarter. The same catalysts behind Simon’s solid results are at work here. CBL’s yield is a sizeable 5.6%. Our 12-month target for the stock is $22 a share.
PRICE AT REC.: $14.73  •  P/E: 61.38

3 AMERICAN EXPRESS CO.(AXP) should report revenue gains this past year and 2012 as well. We anticipate a 9% rise in 2011 and 12% this year. AmEx’s U.S. and overseas card divisions are driving increases and we were encouraged by the company’s international business in the 2011 third quarter—even amid concerns over Europe’s sovereign debt problems. Write-offs in the U.S. card division have fallen to 2.9% in the 2011 third quarter from 5.7% a year before, a sign that credit issues are abating. We currently hold a $58 price target on AmEx shares.
PRICE AT REC.: $48.78  •  P/E: 12.23

Morningstar analyst Daniel Holland says there may be a long-term investment opportunity in the confusion created by such contradictory information. For one, despite the signs of an economic slowdown in Europe and the U.S., many industrials are still reporting strong order growth. A second positive sign: stock buybacks and merger activity in the sector, which have both been on the upswing. “There are definitely indications that when it comes to the best run industrials, current worries are more headlines than fundamental concerns,” says Holland.

It’s clear that the best managed companies in the group took away some important lessons from the 2008 recession. Many have pared down debt and streamlined operations. Industrials also have a trump card to the effects of the European economic troubles by having some of their business in emerging markets where infrastructure spending is helping to boost revenues. “China and Brazil are particularly compelling stories right now,” says Holland. Finally, stock market volatility has brought down some share prices of the best stocks in the group to bargain levels.

“We look for companies with a wide moat, or in other words, barriers, to keep competitors from encroaching on their markets,” says Holland. “That can include expertise, service, or technology. The bottom line is that in a cyclical industry like this, moats make it possible to maintain operating margins and, in turn, profits.” Holland talked to black enterprise about three of his industrial picks.

—James A. Anderson

1 GENERAL ELECTRIC CO. (GE) It’s a company that ranks as one of our best ideas right now. The stock trades at about 11 times our current-year earnings estimate, which is quite cheap compared with other industrial companies and the historical price-to-earnings ratio that GE has carried in the past. The company is placing more focus on equipment for power generation, which positions it well for emerging market growth. Management currently aims for the GE energy business to grow earnings by more than 10% a year. GE Capital, the company’s finance arm, has bounced back from concerns that clouded its outlook during the 2008 economic crisis. We think GE can reach a fair value of $25 a share.
PRICE AT REC.: $16.48  •  P/E: 12.58

2 PARKER HANNIFIN CORP. (PH) is a maker of engineering and manufacturing equipment—motion and control components as they are called. They include automation and flight control systems, hydraulics, filtration systems, and engines, which are used by companies from McDonald’s to Caterpillar. Parker Hannifin is managed well and has a reputation for engineering expertise. Since the 2008 financial crisis, it has focused on controlling costs and expanding operating margins above 10%. The company also trimmed its debt from roughly 30% of capital on average to a current 20%. It has put 60 years’ worth of effort into setting up a global distribution network. We think fair value for the stock is $97.
PRICE AT REC.: $83.74  •  P/E: 12.39

3 UNITED TECHNOLOGIES CORP. (UTX) United Technologies Corp. has a focus in aerospace and construction. You probably know some of its higher-profile products: Otis elevators, Carrier air conditioners, Sikorsky helicopters, or Pratt & Whitney engines. Like other peers, United Technologies has emphasized cost cutting. Management expects to extract $350 million to $400 million of annual cost reductions. We think the company can attain compound annual earnings growth of 10.9% over the next five years and reach a fair value of $94. One tailwind is its 20% exposure to emerging market growth; another is its recent acquisition of Goodrich Corp., a leading supplier of services and systems to the aerospace and defense industry.
PRICE AT REC.: $78.87  •  P/E: 14.80

Q: “Should I start a 401(k) or 403(b) investment plan at 63 years of age?”

A: Yes! Actually, I think it can be a good idea to start a 401(k) plan at any point during your working years. You may know that a 401(k) or 403(b) is an employer sponsored retirement savings plan. But you may not know the full range of benefits associated with these plans.

For starters, you get three primary advantages with saving for your Golden Years using a 401(k). The first advantage is that you can set aside retirement funds on a pre‑tax basis; this lowers your annual tax bill. The second benefit is you get the potential for get capital appreciation when you invest your 401(k) funds in investments such as individual stocks or mutual funds. Finally, a third benefit of a 401(k) is that you may receive matching funds from your employer – which helps turbocharge your savings.

A 401(k) also gives you a more disciplined approach to investing for retirement, because you’ll be consistently contributing to your retirement assets – every pay period – regardless of what the market is doing. Such consistency also helps takes emotion out of the investing equation – making you less likely to be driven by fear or greed when the stock market swoons or surges.

Even if you wind up retiring in a few short years—say, at the age of 65 or 70, it’s still worth it for you to put aside more money into that nest egg and help to build your savings cushion.

That way, when you do leave the work place, you are not simply dependent upon your own savings that you might have had, which may be limited. You also won’t be solely dependent upon government funds such as Social Security.

Currently, the average Social Security recipient is only receiving roughly $1,000 per month. That’s not a lot of money to live off of.

If you’re 63, you’re probably at a higher level of earnings power, so you have the option to go ahead and put aside more money.

And here’s a bonus for you: The IRS recently announced that starting in 2012, the maximum amount you can sock away in a 401(k) plan is being raised to $17,000 for those under 50 and to $22,500 for those 50 and older. That’s a $500 increase over 2011 levels. (That $22,500 figure includes the “catch up” contributions that individuals 50 and older are permitted to contribute to a 401(k), as a way to help Americans who may have started saving for retirement later in life).

So let’s assume you did sock away at least $17,000 a year for five years. Well, that’s $85,000. If you saved $22,500 a year for five years, you’d amass $112,500, not assuming any increases (or losses) to your savings.

Hopefully, though, the funds you put aside for your retirement will grow and collect interest. Also, as I mentioned, you may even get some form of an employer match as well. It might not be dollar for dollar, but even if it’s $0.50 cents on the dollar or $0.25 cents for every dollar that you put in, that’s an additional kicker that you can look forward to.

All of this means you have many great reasons, even past age 60, to save in a 401(k) or 403(b) plan—and I would encourage you to do just that.

“Ask The Money Coach” is a syndicated column written by personal finance expert Lynnette Khalfani-Cox, co-founder of the free financial advice blog, AskTheMoneyCoach.com. Follow Lynnette on Twitter at @themoneycoach.

“The area is a very strong performer over the long term,” says McKissack, whose firm manages approximately $800 million in institutional funds. “The group has underperformed this year, but when you look further out, we feel midcaps will retain their performance advantage and are one of the best places in the market.” The numbers support McKissack’s outlook. Over a 10-year-period ending Aug. 31, the Russell 1000 index of large company shares returned 3.16%. The Russell MidCap index—the types of undervalued shares McKissack selects for his portfolios—were up 7.16%.

McKissack doesn’t foresee a double-dip recession but he does expect “more stresses and pressures” from Europe and a weak U.S. job market. As such, the volatile stock market will continue to bounce up and down. “General sentiment is worse than what we see for the economy, and as a result, we think there are attractive opportunities,” he says. “It’s a good time for investors to add selectively to their positions rather than to switch money to fixed income or cash, which yield practically nothing right now.”

If S&P held the pristine reputation it once had, a stock market sell-off might have made sense. But the organization’s credibility has been seriously in question since the depths of the last financial crisis when it gave AAA ratings to the toxic subprime mortgages that propelled the liquidity crisis that took our financial system to the brink in 2008. It is worth noting that as I write this column, S&P’s main competitors, Fitch and Moody’s, have maintained their AAA ratings on the United States.

Normally, a lowered credit rating tends to cause interest rates to rise based upon a reasonable view that more risk is at hand. But so far, the opposite is occurring; interest rates for U.S. Treasuries have fallen—thereby underscoring their place in the world as the most secure investment one can make. More specifically, on those days when we have seen significant stock market losses, nervous investors have been flocking to, of all things, U.S. Treasuries! Simply put, U.S. government debt cannot be riskier and simultaneously remain one of very few safe havens in a panic. Taking this argument one step further, I ask a simple question: Does anyone believe the United States is less creditworthy today than it was in the middle of the 2008 financial crisis? If the answer is no, than either we should have been downgraded then, or the current downgrade makes no sense since it supposedly captures an increased risk of default.

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In my view, U.S. Treasuries will remain a virtually risk-free security regardless of what S&P says—making AA+ the new AAA. For one, as the great Warren Buffett has noted, the U.S. “owes no money in currency other than the U.S. dollar, which it can print at will.” That is not true of European countries who are all tied to a common currency—the Euro—which they cannot print. About 45% of our sovereign debt is held abroad by countries such as China and Japan. If those foreign entities agreed with Standard & Poor’s they would abandon Treasuries, which has not happened. The reason being, foreign investors, especially large central banks, have two choices aside from U.S. Treasuries: slim and none. Given the recent market turmoil, European sovereign debt is looking riskier by the minute. Moreover, the BRICs (Brazil, Russia, India, and China) are nowhere near ready to stand in as any sort of global reserve. When taken in a global context, we think foreign investors are now more likely to bulk up on Treasuries than pull back.

So, what does this mean you should do? That’s the simple part: nothing different. I don’t believe the unfortunate downgrade of our great nation should cause you to change your view of the country, its credit, the stock market, or anything else, frankly. In the words of Vanguard founder John Bogle: “Don’t do something, stand there!” You should examine your asset allocation to make sure it remains in line with your long-term goals.  Continue to invest as much as you can in your 401(k) or IRAs. If you have cash and agree with me that the stock market is once again cheap, by all means buy prudently. But most of all, do not panic and do not sell just because we dropped half an “A.”

Mellody Hobson is president of Ariel Investments L.L.C., a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds. She is also a regular contributor to ABC’s Good Morning America.

On top of that, dividend payers are particularly valuable in a shaky economy (see “How You Can Profit from Market Volatility,” this issue). That’s because they require a hefty commitment on the part of corporate management. Think of it this way: A company has to be pretty confident about its business in order to share a slice of its profits with shareholders. Dividend payers tend to be large, blue-chip companies with a proven track record of results. It’s that sort of dependability that helps to steady the performance of dividend-paying stocks in turbulent markets.

Then there’s the fact that interest rates on Treasury bonds have been quite low. Abercrombie says dependable companies that pay an above-average yield (the ratio of a company’s annual dividend payout to its stock price) are an attractive substitute.
A Texas native, Abercrombie works in the investment firm’s Dallas office, where he manages money for high-net worth clients. Named a top financial all-star by Black Enterprise in 2010, Abercrombie talked to BE about three of his stock picks.

1) Johnson & Johnson (JNJ) is one of just four companies that carry a AAA grade on its debt. The company offers a 3.6% yield and has been very reliable—it’s made steady payments since 1944 and has increased its dividend annually for the last 49 years. I think the company can accelerate its earnings growth over the next few years thanks to breakthroughs from its biopharmaceutical businesses. The company’s pipeline includes potential new treatments for Alzheimer’s disease, prostate cancer, hepatitis C, and a stroke prevention medicine. In our view, shares do not fully reflect the value of J&J’s pipeline potential, and as a result we believe shares are attractively valued. Meanwhile, J&J should be affected less and less by major patent expirations on earlier products.
STOCK PRICE: $64.36   •   DIVIDEND YIELD: 3.6%

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2) AT&T (T) pays a 5.8% dividend. The telecommunications giant has made payouts since 1984 and has increased dividends steadily over the last 26 years. If completed, AT&T’s merger with T-Mobile USA will make it the No. 1 wireless operator in the U.S. (At press time, the U.S. Justice Department filed an antitrust lawsuit to block the proposed acquisition.) The union should bring about operating savings that will fully offset the purchase price. Over the past five years, AT&T has grown its dividend about 5% per year on average. We expect a 2% growth rate in the next five years. We expect revenue growth in a stabilizing economy thanks to AT&T’s wireless and television businesses.
STOCK PRICE: $28.79   •   DIVIDEND YIELD: 5.8%

3) Kinder Morgan Energy Partners (KMP) which operates oil and gas pipelines and storage facilities, pays a 6.6% dividend yield. Kinder Morgan has some 28,000 miles of pipelines used to transport natural gas and refined oil. The company has paid a dividend since 1992 and has increased its payout to investors the last 14 years running. We think Kinder Morgan can generate low double-digit income earnings growth this year, reflecting acquisitions and increased demand for storage capacity. For the past decade this dividend stock has delivered annualized total returns of 19.5%. What’s more: A $10,000 investment in Kinder Morgan 20 years ago would be worth $190,000 today. In the next year, the company plans to build up its energy transportation and storage assets—one reason we think it is insulated from any decrease in oil or gas prices.
Stock Price: $70.56   •   DIVIDEND YIELD: 6.6%

Garrett, 80, a Durham, North Carolina, retiree who has invested in stocks for 40 to 50 years, said the latest meltdown on Wall Street has made him “very nervous.” He maintains that the volatile market is the second worst he has seen since stocks tumbled after the financial crisis in 2008. “I learned some lessons from 2008,” he says.

Today’s stock market activity has made him look more closely at the type of investments he should include in his portfolio—whether it’s stocks, cash, or fixed-income assets. “I want what works best for the well-being of my family,” says Garrett who has a wife, Wanda, 78, three grown children, seven grandchildren, and 10 great-grandchildren.
While he has become a more cautious investor, Garrett hunts for bargain stocks with strong long-term growth potential. Given the market’s volatile nature, his holdings have taken a wild ride. Consider, on July 24, Garrett’s investment strategy was “moderately aggressive,” and 75% of his investments were in equities, 10% savings, and 15% fixed income.

However on July 25, driven largely by stock market jitters and Congress squabbling over the debt ceiling, Garrett liquidated much of his stock and shifted his holdings to only 10% stock and 80% cash, and the remainder in fixed income.

Since then he has also changed his investment philosophy, becoming a self-professed “moderate” investor. On Aug. 10, after the debt ceiling compromise and stabilization of the market (at least for a few sessions), Garrett says he re-entered the market and boosted his stock holdings to 50% from 10% through his investment advisers, Piedmont Investment Advisors L.L.C. (No. 8 on the be asset managers list with $3.4 billion in assets under management). A sophisticated investor, the former CPA and lawyer has mostly blue chip stocks among his equity holdings, which make up 50% of his portfolio, 22% cash, and the remaining 28% in fixed-income investments. Stocks make up 40% of his portfolio’s value. “I’m very watchful with what’s going on now,” Garrett says.

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Garrett’s revised strategy—and those of hordes of individual investors—came about as equity markets were being hammered, largely dented by a combination of recent bad economic news: From Aug. 5 through Aug. 26, the Dow Jones industrial average dropped 1.40%, the Nasdaq composite index fell 2%, and the Standard & Poor’s 500 slid 1.88%, according to SNL Financial L.C., a Charlottesville, Virginia, financial services research firm. But gigantic swings of several hundred points in a short time have become the norm.

Wall Street has felt shocks from heightened fears about the sour economy, the possibility of a double-dip recession, and worries over the European debt crisis. Moreover, on Aug. 5 Standard & Poor’s slashed the United States’ credit rating to AA+ from AAA. Also in early August, the Federal Reserve pledged to keep interest rates super low for two more years making investors scratch their heads over the long-term impact of those events.

Well, expect more volatility. The market will continue to seesaw as a congressional super committee deliberates over the best way to shrink the federal deficit and the 2012 presidential contest heats up. Despite the unpredictable climate, a group of top-flight money managers says there are still some attractive places to invest your money—that’s particularly true for long-term investors willing to ride out some short-term bumps.

Stay calm and focus on long-term goals. Isaac H. Green, CEO at Piedmont Investment Advisors, says Garrett’s portfolio shifts were based on his risk tolerance and need for safety. He believes investors must realize in a turbulent market that short-term risks are magnified by market volatility. If a person has a long-term horizon, they can actually afford to not pay too much attention to market turbulence.

William H. Young, president and COO of Buford, Dickson, Harper & Sparrow Inc., a St. Louis-based portfolio management and financial services firm, agrees, urging investors not to panic: “Staying calm will keep investors from making knee-jerk decisions that they will regret when the market settles down.”

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Eugene A. Profit, CEO of Profit Investment Management L.L.C. (No. 15 on the BE Asset Managers  list with $2.07 billion in assets under management) adds it’s extremely important to understand long-term investment objectives—whether you are trying to build a nest egg or finance junior’s college education.

Stick with market leaders. Young recommends quality stocks with proven earnings track records and strong cash positions. Specifically, he recommends market leaders such as Apple Inc. (AAPL), McDonalds Corp. (MCD), FedEx Corp. (FDX), and PepsiCo Inc. (PEP). His reason: All have strong brands, solid products, and product development with consistent earnings. “These are the factors that should be considered when selecting investments,” he says.

Profit likes U.S. multinational companies with revenue streams that benefit from multiple geographic locations and offer downside protection. His firm is focusing on stocks in the technology and healthcare industries due to the need for such products and low investor expectations. He says equities that have become more attractive during the recent market activity include Google Inc. (GOOG), EMC Corp. (EMC), Aetna Inc. (AET), and Costco Wholesale Corp. (COST). “It’s a great time to buy high-quality, large, successful U.S. companies at what will be seen to be bargain prices in future years,” he says.

Look for bargains. Timothy Fidler, senior vice president, co-portfolio manager of focused-value strategies, and portfolio manager of mid-cap products for Ariel Investments L.L.C. (No. 6 on the be asset managers list with $5.5 billion in assets under management), agrees that market downturns offer some great opportunities: “If you’re a longer term investor, buying shares of very high-quality businesses at these prices will give you some attractive returns.”

He says Lazard Ltd. (LAZ), one of the world’s largest investment banks, falls into that class. The firm advises clients on mergers, acquisitions and restructurings, as well as operates an asset management business. Fidler says that unlike its rivals such as Goldman Sachs and JPMorgan Chase, Lazard is an independent firm without the balance sheet risks of its competitors with trading arms or mortgage portfolios. Moreover, Lazard is not being hounded by federal regulators regarding capital requirements. “What we like about the firm is that there is enormous pent-up demand for advisory services, particularly M&A, in the global economy,” says Fidler of Lazard, which at press time was trading around $26 a share from the mid $40s in May.

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Another firm Fidler likes is Jones Lang LaSalle (JLL), a global real estate services firm specializing in commercial property management, leasing, and investment management services. He predicts commercial real estate will grow much faster than residential as the economy fully recovers. The stock now trades around $60 a share versus $108 three months ago.

In addition to Lazard and Jones Lang LaSalle, Fidler is attracted to CBS Corp. (CBS). Currently trading around $23 a share, CBS is a “dirt cheap” stock given it’s now growing very rapidly and well-positioned to benefit from mammoth spending during the 2012 political campaign.

“These businesses are worth substantially more than where they are trading today,” he maintains. “Their (current) value gives you a sense of how quickly the market has nosedived in the last month.”

Seek out dividend-paying stocks. According to Piedmont’s Green, some companies have managed to significantly grow earnings over the past decade, generating free cash flow and starting to offer investors strong dividend yields. He maintains that companies with above-average dividend yields, moderate dividend payout ratios, and a history of growing the dividend are very attractive now.

Vast opportunities can be found in the consumer products world. Green points to major packaged food and beverage companies and household products firms manufacturing goods ranging from detergent and toothpaste to soda and cheese. Many food and beverage companies, household product manufacturers, and pharmaceutical firms offer annual dividend yields of 3% or 4%, he says. “That yield is going to grow with the growth rate of those companies,” Green says. “That looks like a pretty good investment to me right now.”

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Fidler also recommends healthcare firms such as Abbott Laboratories (ABT) and Merck & Co. Inc. (MRK) paying annual dividends of 4% and 5%. His reason: The dividends of both companies are sustainable for the long term as their earnings are much higher than the dividends they pay out to investors. (See “Stocks That Pay Dividends,” this issue.)
Treasuries remain among safe investments. Greg McBride, senior financial analyst at Bankrate.com, says the weak economy will keep interest rates low, but the downgrade will raise borrowing costs for Uncle Sam, consumers, and businesses. For example, riskier borrowers may see credit card issuers increase rates, but consumers with sterling credit are unlikely to see the same impact. For home loans, the weak economy is the key determinant of where mortgage rates are, McBride says. Eventually the downgrade will result in higher mortgage rates, but not until the economy picks up some speed.

If Treasury rates keep dropping says Mary Pugh, CEO and chief investment officer of Seattle-based Pugh Capital Management, expect 15-year and 30-year mortgage rates to also fall because those rates typically move in tandem. “If we end up with a very weak economy or in a double-dip situation, we could see mortgage rates dip 25 to 50 basis points below their current levels,” she says.

From a credit quality standpoint, Pugh says Treasuries still offer a risk-free credit investment. For instance, she says a 10-year Treasury note at 2.4% might seem low, but it’s a much better return when compared to a savings or money market account.

Even with the downgrade, investors continued to flock to government bonds as safe havens in the topsy-turvy market. Experts say these securities represent the world’s most solid investment—especially with the nagging European debt crisis. No investor holding U.S. Treasuries is expected to lose principal.