Protecting your investments

Marketplace Staff Sep 15, 2006


KAI RYSSDAL: With all of the economic ups and downs of 2006, most investors are probably thankful the year’s almost over. And some are left wondering, when facing an uncertain economy, what’s the best way to protect your investments? Jane Kim is from the Wall Street Journal. She’s been researching the best ways to do it. Hi Jane


RYSSDAL: So it can be tricky out there these days with energy prices high and the housing market who knows what’s going on there. What is the solitary investor to do?

KIM: The solitary investor really has to essentially play defensive with their portfolio. There’s a lot of concerns about the slowing economy. Housing prices are dropping. Energy prices are still high. Interest rates, who knows where they’re headed. So it’s best to be safe and try to position their portfolio by looking to assets that will do well in any sort of economic environment.

RYSSDAL: Alright, well let’s break that up and talk about the big asset classes we have out there — stocks and bond and finally cash we’ll get to. What do you do in the equity markets? I mean it’s always risky. How can you sort of, how can you play defense as you said?

KIM: Well you want to look for sectors in stocks that will do well in a slowing economic environment. Think about companies that provide the types of goods and services that people need whether or not we’re in a slowing economy or an expanding economy. That would be things like say, health care, consumer staples. People need to buy those types of items and services in both good and bad times. And so those are the types of sectors and companies that a lot of Wall Street strategists say that people should start to put more into their portfolio.

RYSSDAL: What about moving away from equities and the risk that’s inherent there? Something a bit more stable, something a bit more usually trustworthy: bonds. What do you think?

KIM: It’s probably a good idea to think about looking into longer term bonds because in a slowing economy that’s an environment where interest rates start to stabilize and may even drop. There are some economists out there who expect that the Fed, perhaps early next year may even begin to cut rates. And when interest rates drop that is usually good for bond prices because they move inversely. So it’s probably a good time to think about going into longer term bonds. And within fixed income you also want to move to higher quality bonds. That is, say junk bonds which have had a very strong run the last couple of years, those types of securities don’t do well in a contracting environment. So you may want to sort of move towards high quality corporate bonds, treasuries as well.

RYSSDAL: Alright. Nothing says you have to put your money any place other than in the bank. What about keeping some cash on hand?

KIM: Cash is a great alternative right now. It’s paying say upwards of 5% in some cases and CDs, money market mutual funds, money market accounts, you can find pretty good rates upwards of say 5%, and even some high-yielding savings accounts. It’s a very good alternative at this point.

RYSSDAL: Alright. Jane Kim from the Wall Street Journal. Thanks a lot Jane.

KIM: Thanks Kai.

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