The best places to invest in 2007
- Alan Lavine and Gail Liberman
Despite Wall Street's bright economic forecast, stocks still could tumble due to more trouble in the Middle East, a terrorist attack or high inflation.
So it pays to play it safe by diversifying. Here's how:
Consider owning the entire stock market in an index fund such as the Vanguard Total Market Fund. This fund owns large company, medium-size companies and small-company growth and undervalued stocks. The fund has no load and is low-cost. It also has outperformed the majority of actively managed U.S. stock funds.Consider owning an international stock fund. With active management, there are opportunities to pick overlooked stocks internationally. Some of the top-rated foreign stock funds according to Morningstar Inc., Chicago, include: Alliance Bernstein International Growth, Fidelity International Discovery and Julius Bear International Equity.Own money funds or bank CDs. Check out the highest-yielding money funds at www.imoneynet.com. The highest-yielding bank CDs are at www.bankrate.com. Beware that money funds have no U.S. government guarantee. Keep some money in bonds that mature in 10 years or less. You typically get your principal back when bonds mature. By contrast, bond funds, which trade in bonds, don't mature. So the value of your bond fund will always fluctuate. For your bond picks, stick with Treasury bonds, notes and bills, because they're backed by Uncle Sam. You also might consider corporate bonds rated AAA by Standard & Poor's. These are bonds issued by the most creditworthy corporations. Are you in high tax bracket? If so, consider tax-free money market funds, insured municipal bonds or municipal bonds rated AAA by Standard & Poor's. If you are concerned about inflation, gold or precious metals stock funds may be a good bet. These investments generally do well during times of crisis or high inflation. The best-rated precious metals funds, according to Morningstar, are the First Eagle Gold Fund and the Vanguard Precious Metals Mining Fund.
Cash and bonds help cushion the blow of stock market losses. Bonds typically perform well during recessions and bear markets in stocks. Money funds pay higher yields when interest rates rise. But the share price of money funds, which invest primarily in short-term securities, generally up to 90 days, stays at $1, so you shouldn't lose money.
Financial advisers often recommend that you keep 5 percent of your total assets in inflation hedges. This way, when stock and bonds tumble due to rising inflation and interest rates, these investments likely will perform well. It's a way to offset some losses in stocks and bonds.
Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.
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