& investing 2006: Interest
rates keep rising
|By Laura Bruce Bankrate.com
As the stock
market rocked back and forth
between overbought and oversold
in 2006, less-nimble investors
who didn't take profits off
the table fast enough may have
wished a lot more of their portfolio
was in fixed income.
Aficionados of high yield certificates of deposit, money market accounts and money funds have enjoyed an excellent year. Yields climbed steadily as the Federal Reserve Board's Open Market Committee routinely hiked short-term interest rates.
It was a welcome change from the skimpy returns that dogged the short-term fixed income market ever since January 2001 when the Fed started knocking down short-term interest rates meeting after meeting, culminating in a 1 percent fed funds rate that lasted from June 2003 to June 2004.
Of course, we
knew the goose couldn't lay
little golden eggs forever.
The rate hikes stopped in August,
and it's anyone's guess when
the Fed will decide the economy's
pendulum is swinging too far
in the opposite direction and
decide to start cutting rates
Inflation and world unrest were major themes in 2006. Gold, the proverbial security blanket during shaky times, caused quite a stir when the price per ounce started rising to levels that hadn't been seen in 20 years. Gold peaked at $850 an ounce in 1980 only to wither to $255 by 2001.
The price of the precious metal had been in an upward trend since then, but not many everyday investors noticed. By the start of 2006 it had climbed past $500 and in May it topped out around $722. As so often happens, folks who bought at the high may have to wait quite some time to see their investment pan out.
Economists seemed to spend considerable time pondering whether inflation was a problem in 2006. Consumers weren't scratching their noggins: They knew it was a problem as insurance, tuition, utilities, medical, food and gas costs emptied their wallets faster than their paychecks filled them.
the government's inflation-fighting
security known as the I bond
took a wild swing down from
its November 2005 pricing of
6.73 percent to a mere 2.4 percent
when it was repriced in May
2006. The move left many customers
confused as they were sure they
were laying out a lot more cash
for just about everything. Apparently,
fluctuating energy prices had
fallen during the previous six
months and were just on their
way up again, so they didn't
With a survey, Bankrate.com quantified something just about everyone knew -- Americans are woefully unprepared for a financial emergency. Our survey revealed that only 39 percent -- fewer than four out of 10 adults -- have the minimum emergency fund of three months' living expenses set aside. It's an especially disturbing statistic considering that experts say that six months' living expenses should really be the goal.
And finally, on
the legislative front, President
Bush signed into law the Federal
Deposit Insurance Reform Act
of 2005. Perhaps one of the
more popular things this law
does is increase FDIC coverage
to $250,000 on retirement accounts,
which some say is a long overdue
couldn't manage to increase
FDIC coverage on general accounts,
which remains at $100,000. It
is the same cap that's been
in effect since 1980, although
Congress did allow it to be
indexed for inflation beginning