Investing in 2008
January 04, 2008
Many predictive models and some trading platforms like intrade.com are rating the probability of a recession in 2008 at greater than 50%. An outlook this for the coming year makes investing safely more of a challenge. When you consider that interest rates have fallen a point since last year and are expected to fall further, the safety investor has a challenge when finding their right balance of safety and yield in their savings portfolio. As a comparision guide for such an investor money-rates.com reports on a variety of safety-oriented model savings portfolios as listed below:
Model Bank Deposits Portfolio
A portfolio consisting of FDIC-insured bank deposits would achieve the highest possible level of safety as long as an investor limited their deposits at each individual bank to $100,000. This portfolio provides liquidity in the form of checking, money market, and savings accounts and monthly income streams from the certificates of deposit. By adjusting to the latest online bank deals this portfolio consistently outperforms many investments.
2007 Return: 5.43%
Current Yield: 5.32%
Model Money Funds Portfolio
A portfolio consisting of the money market funds issued by mutual fund companies this portfolio provides a competitive yield with limited risk. Mutual fund companies have a long history of protecting their net asset value of $1 in these funds, although investors have no federal insurance. The portfolio adjusts to the most competitive yields offered by major mutual fund companies who stay withing the parameters of typical safety-oriented money market fund investing.
2007 Return: 4.95%
Current Yield: 4.82%
See Portfolio Holdings
Model Commercial Paper Portfolio
A portfolio consisting private debt issued by corporation and available to individual investors. The GE Capital Plus Notes and Ford Interest Advantage act as bank money market accounts with check-writing privileges, but carry no federal insurance or backing. Investments are only backed by the financial stability of the underwriting corporation. The yields are higher due to the inherent risk over Treasuries or bank deposits.
2007 Return: 5.43%
Current Yield: 5.32%
Model Bond Fund Portfolio
A portfolio consisting of short-term government bond funds which typically do not show great price volatility. This model portfolio would allow an investor to hold a diversified portfolio of U.S. Treasuries reducing some of the price risk of holding a single Treasury Bill or Treasury Note.
2007 Return: 4.39%
Current Yield: 4.45%
Model Stock Portfolio
By investing in stocks this portfolio has the most risk inherent and was the only portfolio to produce a negative return in 2007. The portfolio held various bank stocks which provided low price-to-earnings ratios and high dividend yields after their stock price were hammered by the subprime lending crisis. Currently, the portfolio holds Citigroup (C), Washington Mutual (WM), and National City Corp (NCC) as speculative stocks trading well-below their 52-week highs in the anticipation that the banks will recover in 2008. In addition, the portfolio holds a pair of iShares exhange traded Treasury funds to help stabilize the overall return.
2007 Return: -4.99%
Current Yield: 7.38%
Investors should use the above models for information purposes only and should consult a financial advisor for the investment decisions.
