Memorial Day

Happy Memorial Day! Thanks to all those servicemen and women who have died to keep this country free! For some information on the history of Memorial Day, check out:

http://www.usmemorialday.org/backgrnd.html

Searching for yield

Investors and savers searching for income are starting to squirm. As CD rates continue to drop, those who have maturing CD's have a difficult decision to make. Do I reinvest my 5% CD into a 1-2% CD or take my chances in the stock market by buying a stock with a nice dividend? One option many people forget about is bonds. Bonds come in many varieties, Government bonds, Corporate bonds, and Municipal bonds, to name a few. Many people shy away from bonds mainly because they don't understand how they work. One perception is that they have a very long holding period, like 20 or 30 years. While its true that some bonds when first issued, can have a 30 year maturity, bonds can be purchased in the secondary market with maturities of a year or two. So if you're worried about inflation and interest rates rising again soon, you can buy a bond with a short time horizon. Another mistake is thinking that you will lose money buying a bond. Well, you can lose money buying anything. That's the risk of investing. But the way most people lose money with bonds is because they sell them for less than they paid for them, just like stocks. On the other hand, if you find a bond and buy it at a discount, you will make money if you hold it to maturity. In addition, you will collect some nice interest payments, called coupons, along the way. The other way you can lose money with bonds, is if they default. That is why you need to make sure to buy high quality, or investment grade bonds. These days, investment grade, corporate bonds can be found on the secondary market that are maturing in less than 5 years, that are paying over 5% and can be purchased at a discount. Government bonds, while safer, are not paying anymore than CD's, and municipal bonds are much harder to find at a discount. Most are now selling at a high premium, making them less desirable. So if you need income, and can't stomach the paltry rates that bank CD's are paying, buy bonds! They're not as scary as you think!

Wordless Wednesday

Time to buy gold (again)?

Now that gold has passed through the $1200 per oz barrier, people are talking about gold again. Should I buy gold, should I sell gold? Like any other investment, it all depends. The main reason people buy gold is as a hedge against inflation. Right now, inflation is still not a problem. So why has the price of gold jumped up lately? Well, the Euro is very weak right now and there has been tremendous volatility in the stock markets due to the problems in Europe, particularly Greece, Portugal, and Spain. Not too mention the so called "Flash Crash" that we had on May 6th. In addition, many people feel stocks had run up too fast and were due for a correction anyway. All this has people all over the world worried, and when doom and gloom prevails people buy gold. Like anything else, if everyone wants something that is in limited supply, the price is naturally going to go up. So some people are buying gold as a diversification tool in their portfolios. Not a bad idea, just don't go overboard. Here are a few key things to remember about gold as an investment. It doesn't pay income or dividends. Gold is strictly a capital appreciation play. What form are you going to buy it in? You can buy gold funds or ETF's which can be held in your investment portfolio, but if you buy gold coins or bars, you have to consider the storage costs and safety issues. Items placed in your safe deposit box at the local bank are not FDIC insured. So what are the alternatives? Many experts believe commodities in general, not just gold, are still in a bull market and have room for advancement. While we may not see inflationary pressures on interest rates anytime soon, the prices of commodities may continue to rise for a while. Silver, while similar to gold, is much cheaper than gold and has many other uses to people and industry than does gold. So what to do? Keep your options open, and if you do buy gold, don't go crazy. Most experts recommend 5 to 10% of your portfolio tops.

Wordless Wednesday

So you want a CD

One strategy for CD buyers looking for higher yielding CD's is to buy CDs that mature farther into the future. That is, instead of buying a one year CD, buy a 3 year or 5 year CD. You may be surprised to know that CD's can have maturities up to 20 years out! Currently, many CD shoppers are buying one year CD's or less, because they are worried that interest rates will go up next year. But what if they don't? The Fed has not changed rates since December 2008, and they haven't given any indication that they will raise rates anytime soon. The risk in CD's is that you don't know what the rates will be in the future. So what's a better approach? Build a CD ladder with CD's that mature in staggered maturities. Many people want their CD's to mature each year so they can access cash for planned purchases or emergencies without penalty. If you build a CD ladder, you will have money available each year to spend or reinvest. So how do you do it? Buy a 1, 2, 3, and even a 4 year, and 5 year CD to begin. As each CD matures, you buy another 5 year CD which will go on the back end of your ladder. After 4 years, you will own nothing but 5 year CD's, but you will have a CD maturing each year, so you can take advantage of available cash, or buy another 5 year CD. Remember, 5 year CD's will always pay more than 1 or 2 year CD's, and if rates start to go back up, they will go up for all CD's not just the shorter ones. So if you are going to buy CD's, do yourself a favor and buy smart, build a CD ladder. For more aggressive investors, the same thing can be done with bonds.

Wordless Wednesday