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Diversification tips for the little people

Posted by: Aaron Pressman on October 16, 2006

There are several million potential readers for every article in the print version of Businessweek (if our subscriber surveys are to be believed) and hundreds of millions more when those articles are posted online. That can pose a quandary especially for sections like personal finance. Should we be writing for an ordinary Joe and his limited 401(k) mutual fund selection, a wealthy do-it-yourselfer with her online brokerage account or an ultra-wealthy “my broker is E.F. Hutton and E.F. Hutton told me” type? The answer varies depending on the subject matter, the current zeitgeist and advertising climate, the editor in charge and possibly the day of the week.

We had to make one of those decisions a couple of weeks ago for my story about diversification plays, “Before You Leave the Beaten Path.” The decision was go for Mister Super-rich and so you’ll find lines like: “a growing class of timber investment management organizations, or TIMOs, has reduced the required minimum to several hundred thousand dollars.” Do some simple math and you’ll realize that a portfolio where 5% equals a couple of hundred G’s is a $4 million and up portfolio. The rare coin and international real estate plays also have similarly heady minimum investments. None the less, in comes a letter (scroll down to 4th entry) complaining that the little guy was left out and into this week’s Reader Report section it goes. Good point and yet silly point.

So, in honor of our letter writer, here are a few investment vehicles with similar characteristics and (mostly) much lower minimums:

Timber is a tough one but there is the Plum Creek REIT (symbol: PCL) that I mentioned on the blog last month. Also, for the letter writer’s benefit, the recommendation of the experts here was to treat timber as a discrete asset class, not as a bit player in the “natural resources” sector. I doubt 5% of a 5% to 10% allocation to natural resources would even be noticeable given the cap-weighted dominance and volatile swings of energy producers. The performance characteristics of timber are nothing like that. Plum Creek shows a negative correlation with the S&P 500 over the past year but a modest positive correlation over the past three, so it’s not providing the full diversification benefit of TIMOs. Other possibilities to investigate include Deltic Timber (DEL) and Rayonier (RYN).

For international real estate, there are a number of mutual funds that will get you some exposure. Morgan Stanley has a Morningstar-favored fund (MSUAX) but it’s listed as “institutional” with a half-million dollar minimum investment. Fidelity opened a somewhat similar fund, Fidelity International Real Estate (FIREX), not long ago and it has done well so far as has a new offering from Cohen & Steers (IRFAX). Much-praised real estate investor Sam Lieber at Alpine Funds also has an international play (EGLRX). Amazingly, I found no ETF for the sector, but how long can that omission last? (Update - the WSJ reports on October 17 that State Street Global Advisors has just such a fund in registration at the SEC.)

Gold and oil were both discussed in the context of ETFs so that’s available to anybody and rare coins have no smaller play. Sorry, you do-it-yourselfers will just have to try and collect all 50 state quarters and call it a day.

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Reader Comments

Roger Nusbaum

October 16, 2006 08:00 PM

I think my Kansas quarters are now worth $0.26.


June 14, 2007 11:15 AM

Great Post! I agree with some of your diversification suggestions, especially Deltic Timber. I just found an article that agree's with you entirely. Take a look if your interested...


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Businessweek’s Emily Thornton, Amy Feldman, Ben Levisohn, and Ben Steverman focus on matters great and small for investors, from the views of a hot fund manager to an explanation of the latest products devised by Wall Street’s rocket scientists. Exploring trends in any area, from bonds and stocks to closed-end funds and futures, always with an eye towards giving investors a better understanding of the sometimes confusing and often chaotic world of finance. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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