What To Do With Your Money
Published: Thursday, August 18th 2011
Right now is not an easy time to invest. The markets have been wildly unstable; the country’s credit downgrading will surely leave a lasting affect; and globally economic worries from French banks to a slowing German economy.
So what should you do with your money? Larry Elkin, CPA, CFP, president of Palisades Hudson Financial Group, a wealth manager with more than $1 billion under management, offers these guidelines:
Stay invested in stocks, but invest for slower U.S. growth; diversify overseas.
Invest in companies that are increasing their revenue from developing economies, he says. These include U.S. multinationals that are growing overseas, as well as funds that invest in Chinese, Indian, Latin American, Canadian and Australian stock markets.
The myth of the Social Security “trust fund” is gone forever. Save more for your retirement.
Don’t count on generous Social Security payouts in the future. “Social Security is not a pre-funded retirement plan. Its trust fund is nothing more than a pile of government IOUs and is just one claim among many against the federal purse,” he says.
China will let its currency float higher — leading to higher US inflation.
To protect its interests, China needs a convertible currency that prices its goods at what they are really worth.
“I think we will see the Chinese Yuan move sharply higher within the next decade,” Elkin says.
A realistically priced Yuan will mean higher prices for Chinese goods and hence more inflation in the U.S.
The United States no longer controls its own financial destiny and isn’t an AAA risk. Don’t buy long-term Treasuries or other long-term bonds.
A mild downgrade of the national credit rating has not eliminated willing lenders, and Treasuries have boomed since the downgrade. But Elkin says that won’t last.
“At some point in the future, lenders may simply decide they are unwilling to lend to the United States at any rate we are willing or able to pay,” he says. “Any long-term bond — whether a Treasury, a corporate or a muni — is a bad investment at today's ultra-low interest rates.”
The best way to invest in bonds is through a high-grade bond fund that invests in corporate bonds, or a muni bond fund. Look for short-term funds with a duration of about one year, he advises.
The political center still exists, and it seems to be getting ready to finally tackle the big issues.
“This is good news,” Elkin says. “It bodes well for the future of the economy and the stock market in the long term.”