5 Investments You Should Consider Right Now

Wednesday, March 02, 2011

Dan Forbes, GoLocalProv Financial Expert

Even after two years of healthy returns following the 2008 investment debacle, some people are still skittish when it comes to investing. It’s understandable given the cataclysmic tone of the news cycle – the world is coming to an end, the U.S. is turning socialist, Charlie Sheen is running for president. What’s been obscured is that U.S. companies continue to make money and income producing assets continue to pay income. There are problems, serious ones that need to be addressed. But investing has always been about having a long term strategy while making short term adjustments. Within your well thought out and diversified portfolio, here are some ideas to consider within various asset classes:

Dividend Paying Stocks

It used to be that investors started their investment search with companies that paid a healthy dividend. This philosophy has been out of vogue for the last decade or so but seems to be making a comeback. It might feel exhilarating to ride the volatile growth of companies like Google and Apple, but fortunes are usually made with a methodical investing strategy. Exchange traded fund (ETF) S&P Dividend (SDY) currently yields over 3.5%.

Municipal Bonds

Muni’s are supposed to be a “safe” part of your investment strategy, but tell that to people who lost over 10% in a 3 month period. Investors were spooked by the news of pension shortfalls and budget deficits. The good news is that municipals have bounced back from their lows and still have a small percentage chance of default. This doesn’t mean you should look to buy California bonds, but some national funds and the local Narragansett Tax-Free fund still offer tax advantaged returns with high credit quality.

Canada

The argument for investing in Canada starts with this – they don’t have many of the issues the United States is facing right now. The country’s employment situation is much brighter than what we’re seeing domestically. They avoided the mortgage crisis, and subsequently, the foreclosure crisis currently stagnating parts of our economy. As a result, the ishares Canada Index (EWC) has outperformed the S&P 500 each of the past two years.

TIPS

According to the latest CPI numbers, inflation appears to be at bay. Certainly doesn’t seem that way, does it? TIPS are government bonds that over lower yields than traditional Treasury bonds, but add in a CPI component to protect purchasing power. The formula for calculating price changes might have as much as a 60 day lag, so if you believe inflation is on the way up, TIPS are a good way to protect your highest credit quality investments.

Short Duration Bonds

One of the most basic tenets of investing is the inverse relationship between bond prices and interest rates. As you may have heard, interest rates have spent the better part of a year near all time lows. It’s time for them to reverse direction, and that’s bad news for the bond market. If you hold individual bonds to maturity, it’s no big deal. But if you hold bond funds, it’s time to shorten duration on these holdings to minimize the effect of interest rate changes.

Dan Forbes is a regular contributor on business financial issues. His office is in Providence, RI. He leads the firm Forbes Financial Planning and can be reached at [email protected]