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Strategies & Market Trends : Moomin Valley (formerly Troll-free Zone) -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (1487)	8/20/2006 5:16:43 PM
From: RealMuLan	Read Replies (1) \| Respond to of 2852

Invest despite the inverted yield curve BY DEAN KLEVAN Special to the Miami Herald Investing: It's back to the basics. More of us are entering the age where we no longer want (or can afford) to take the risks of managing our retirement accounts ourselves. We watched our 401(k) go to a 201(k) in months as the tech bubble of 1999/2000 came to roost. We do not have the stomach for the volatility of the stock market. Yet the 5.2 percent current yield does not get us from A to B with respect to our retirement planning. Let's look at the current bond market. The inverted yield curve looks like a Florida coastline. Clearly, you are not rewarded by buying longer-term bonds, which carry more interest rate risk. The 30-year has a yield not much different than your community bank's short-term CD. Continued investment in real estate is probably a no no; it will not deliver the large gains seen before. We have seen the peaks and have started heading down the slippery slope in the condo market, particularly in the new, unproven corridors of construction. If anything, savvy investors have lightened up on real estate exposure. There is no panacea. Investors need to go back to some pre-tech and pre-real estate boom concepts. Frankly stated, now is the time for a professionally managed, diversified portfolio tailored to your risk tolerance. Asset allocation is critical, both from a return and risk perspective. Here are some basic thoughts: • Be realistic in terms of return expectations. There's no reason to expect an increase in bond yields. • Consider total return rather than just investment income. This would involve setting up a program of harvesting capital gains on a tax effective basis (remember, long-term capital gains are taxed at a 15 percent rate). • Work with a professional; reliance on investing in indexes may not work. For example, even with the recent run up, the S&P 500 is approximately at the same level it was over the past five years. • Consider broadening the asset classes in your investments. Depending upon the size of your total portfolio, alternative assets (hedge funds) can have attractive returns unrelated to the stock market. International assets can offer handsome returns, both in the equity and bond markets. • Make portfolio adjustments over time. Look at the relative attractiveness of different sectors in the economy. In summary, select a professional you trust. Clearly state your investment horizon and risk tolerance; then set and monitor your asset allocation in light of market conditions. Realistic total return objectives can be met even in today's interest rate environment. miami.com