I think the Fed is done. They've done a fabulous job of communicating with the market as to where they're headed. The yield curve is flat and there's enough leeway that if things go bad they can reduce rates. I think it's time to see what the markets can do with the long end of the yield curve.
If short-term rates really move up, people with adjustable rate mortgages and other variables will be in trouble. There's always a debate in terms of what's best. If you can fix your overhead you can do some amazing things. It's the variable expenses that kill you. There's nothing wrong with a 15- or 30-year fixed. You know what the monthly payment will be.
CD duration should start to be extended. People who have been buying CDs with maturities of one year to 18 months should consider going out two to three years. But, in general, consumers should move away from fixed income. Slowly adjust their portfolio and raise the equity side where appropriate.
Historically,
election years have been very
good. In 2003 we were very
positive on the market, but
2002 was a horrible year in
the market. At the end of
the year we were telling people
they should put some equities
to work. As for 2007, it won't
be as stellar since we're
not coming from such depressed
levels.
Don't try to pick individual stocks or sectors -- most people can't play that game. Be diversified; use diversified mutual funds or exchange-traded funds. Most portfolios should have 20 percent to 30 percent of their assets in overseas investments -- Europe, Asia, and South America. Buy a diversified international fund.
Risk tolerance
is tremendously important.
When the market is up, you
think you know your tolerance
and you say, "This is
easy!" But all of a sudden
rates start creeping up and
your monthly payments are
rising and you realize this
could be a disaster. If you're
going to worry yourself to
death about losing money you
should limit your equities,
but most people should be
moving into equities.
When it comes to cash there's the textbook and then there's Ed's book. Everyone should have three to six months' of expenditures on hand but if you sleep better with 24 months, then it's 24 months. But don't have it all in a checking or savings account. There's a street war going on for money here (Chicago area). Banks are offering 5.75 percent on 13-month CDs. If you don't need the money for that long, you can put it in a CD.
