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Invest in BRICs?
Question: I am 56 years old. I got out of housing before the market fell. I sold my house. I stayed out of the stock market over the last 7 years, so I didn't make or lose money. I was content with small but safe money market accounts. But I don't know what to do now. I have in excess of 250,000 that I could invest. My banker thinks that I should get some money market linked CDs. There is 100% principle protection on FDIC Coverage to applicable limits, and "opportunity to participate in the leverage potential appreciation of equally-weighted BRIC foreign currencies. Is this a good idea? When I retire, I should receive between $2,200-$2,500 per month. I also have another $250,000 401 Ks and several stocks. I am looking at finding an investment that would be FDIC insured but still pay a reasonable investment-3-5%. I would consider something more aggressive if it still felt safe. Must be a lot of people in my age group with this problem. Any suggestions? Anne, Minneapolis, MN
Answer: Here's my basic problem. You've done a good job saving. You're conservative with your money. Why put some of your savings into one of the riskiest bets in the global capital markets, the BRICs? That's shorthand for the world's largest developing nations--Brazil, Russia, India, and China. There are powerful, compelling arguments that the future is bright for the BRICs over the long-haul. But they remain volatile markets and fragile economies. Investing in the BRICs isn't for the faint of heart. Investing in foreign currencies is "rank speculation," to quote from Jack Bogle, the legendary founder of Vanguard.
I know that your principal is safe with this kind of market-linked CD, but it just doesn't make sense to me. The way you've described what you are looking for in an investment tells me that sticking with shorter term Treasuries and CDs--and accepting the lower yield--is probably your best bet.
About the author
Christopher Farrell is economics editor of Marketplace Money, a nationally syndicated one-hour weekly personal finance show produced by American Public Media.
I am in the same boat as Ann. I can't find a competitive CD rate now that the government is handing out money to banks. Right now I'm better off keeping my money in my mattress than getting a return that won't cover the paperwork for tax processing. I'm still in the stock market but given the horrible way investors continue to be treated (NWA, GM) while CEOs are still making millions I have little interest in investing any more. I would also love to receive what I am calling a "government-sponsored equalization check" for all the years I paid my a fixed rate mortgage while others made money on lower variable rates and blew their savings. Many gambled that rates would never go up or house values would never go down. Duh. Now I am being forced to pay for their greed and purposeful stupidity. Yes, some folks were ripped off by con men - and no doubt a few may have done more homework than paying for a round of golf. Even my mother got sucked in by a AARP promotion. When it came to take money out for a nursing home it was a nightmare. The German investment firm told my lawyer they were based in New Jersey and were not bound by the laws of Minnesota (the two they were breaking). The Minnesota State Attorney General's office has done nothing in two years. I am delighted to see the health care insurance industry finally get jostled a bit by a president - the money they have stolen from Americans makes Enron, Worldcm, Anderson, GM, endless investment houses look like petty cash. However, I'm not expecting much to come of it. Just like when Hilary held her town hall meetings years ago, he'll get shut down when the insurance industry started to feel threatened. They'll just spin propaganda over the airwaves and they can buy plenty of hot air because we are paying for it with outragous health care costs. Yup, I now have a better understanding why grampa kept his cash in the coffee can - when he needed a tooth fixed he negotiated payment with the local dentist and threw in a few fresh chickens as a tip. No middleman ripping him off.
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