Money Moves for 2006, Part 2: Your Portfolio
Continuing our foray into Money Magazine’s top money moves for 2006, our next topic is your investment portfolio. Without further ado, here are their top four moves as we move into a period of economic uncertainty…
(1) “Think bonds.” With interest rates on the rise, certain types of bonds (think junk) are likely to get clobbered in the near future, whereas long-term bonds will suffer due to inflation in a higher rate environment. Thus, Money recommends adopting “a safe all-weather bond strategy that starts with short- and intermediate-term debt. Add to that mix a 25 percent allocation to foreign debt … and about half that amount to Treasury Inflation- Protected Securities.”
(2) “Easy on the hard stuff.”While hard assets like real estate, oil, and gold are classic inflation hedges, they’ve all experienced a major runup in recent years. Thus, you could end up getting hammered in a recession.
(3) “Be nimble with cash.” Don’t tie up your cash for the long term (at least not in the first half of 2006), as the Fed will continue pushing up rates throughout the year. Maybe park some of that cash in an Emigrant Direct savings account. If the rate hikes slow down, consider locking in a rate over the longer-term by finding a high yield CD.
(4) “Look for stocks and funds for all seasons.” Some ares of the market do well in the face of high inflation, whereas others do relatively well during recession. Given the current state of the economy, you should consider both types of investments in 2006. They further recommend sectors that do well under these conditions:
Inflation…
Dominant Tech: They can maintain profits since customers have few alternatives. Consider: Cisco
Food: Suppliers have flexibility to raise prices quickly. Consider: Sysco
Energy: Can these guys raise prices in a hurry? You already know the answer. Consider: ExxonMobil
Large cap growth funds: Consider Harbor Capital Appreciation (HCAIX)Recession…
Consumer staples: In hard times, people still do the laundry and brush their teeth. Consider: Procter & Gamble
Utilities: Steady demand for power and steady dividend payouts buttress these stocks. Consider: Southern Co.
Dividend value funds: Consider T. Rowe Price Equity Income (PRFDX)
Read Part 1, Your Home
You’re reading Part 2, Your Portfolio
Read Part 3, Your Job
Read Part 4, Your Health
Read Part 5, Your Family
Read Part 6, Your Spending
[Source: CNN/Money]
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Good time to start thinking about rebalancing the portfolio.
I agree with sticking with short to intermediate bonds because the interest rates are still going up.
Comment by Loi Tran — Nov 17th 2005 @ 2:39 pmWhen rebalancing, be sure to look at selling loser stocks to offset any capital gains you may get this year. The gains don’t have to come from selling assets; if you have mutual funds that pay dividends or capital gains, the final quarter could be a big — and tax-costly — one for you. If you haven’t planned for it, you’ll need to find ways to cut those potential taxes and offsetting gains with losses is an easy way to clear out your portfolio and beat the tax man.
Comment by Kay Bell — Nov 26th 2005 @ 12:14 amKay brings up some excellent points about the tax consequences of mutual funds. That’s one of the reasons I stick mostly to individual stocks in my non tax-deferred accounts. (I posted on the pros/cons of funds vs. stocks.)
Although my wife won’t be too happy, I’m planning to use the holiday break to analyze our current investments and assess our money moves for next year. These general tips will help. Thanks.
Comment by Jeremy — Dec 22nd 2005 @ 9:39 amThere’s a reason why Money Magazine is known as the Mad Magazine of finance…
Comment by thc — Jan 2nd 2006 @ 11:19 pmTHC — I’m not sure what you mean. Are you suggesting that Money is less than professional/accurate/useful?
Comment by FMF — Jan 3rd 2006 @ 8:22 am