Expect rates
to hold fairly steady from
where they are right now.
I think the Fed went one step
too far. I don't expect a
recession -- I think we're
in for a soft landing, but
if growth slows too much there
could be some negative repercussions
and then rates would come
down quickly. The Fed has
to maintain credibility and
they haven't really established
that for themselves yet. Its
inflation-fighting credibility
is an issue for the markets
-- mainly the stock market.
There's a lot of overseas interest helping our economy. They're financing the national debt through dollar-based investments. If they decide to get away from the dollar it could throw us into economic havoc. A lot of foreign money is moving to corporate bonds rather than Treasuries and that may be a reason why we're seeing rates stay so low.
Everything revolves
around inflation. Rates are
a gauge or a guess about future
inflation. As long as it stays
this way rates don't have
to move up. The temptation
is to load up on teaser rates
at the bank; get 5 percent
or 6 percent for a year or
18 months. Given that rates
are fairly flat it goes to
the laddering
idea. If you're happy with
5 percent for a year why be
happy with it for five years?
It's making a guess about
inflation.
Certificates of deposit and short-term Treasuries have kept up with inflation in most cases. Short-term maturities have an anticipated inflation expectation priced into them. Long-term CDs and Treasuries can be badly hurt by inflation. You don't need stocks to hedge inflation; you do that with bonds or CDs. Use stocks to build wealth.
When you play golf you carry more than one club in your bag. You have different clubs for different situations. In a portfolio, different asset classes are designed to do different things. What's the shot you're trying to take? If you're trying to get incomes, use a CD or a short-maturity fixed income investment. Have a little bit of this and a little bit of that and control how much you have based on risk tolerance.
I tell my clients,
the best portfolio is one
I can keep you in for 20 years.
If you look at chart after
chart of a mutual fund you'll
see investment performance.
Most people get investor performance.
They buy and sell, get in
and get out. They get a much
more reduced experience than
they would have had if they'd
bought and held.
