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Weathering an economic downturn with mutual funds

- Alan Lavine and Gail Liberman



It never hurts to have some recession-resistant mutual funds in your portfolio. Funds that invest in bonds and utility stocks often help cushion the blow when the stock market declines.

Economic cycles go to boom to bust and back again every several years. Today, the economic reports are favorable. The economy is growing albeit at a slower pace than the past few years.

But thanks to problems with housing and mortgage loans, some still believe we could have a recession.

Historically, two-thirds of the time, the stock market has gained and lost between -11 percent and +35 percent over the past seven decades, according to Ibbotson Associates Chicago.

So how can you make your investments bullet-proof?

The Street.com reports the following types of securities often weather economic slowdowns.

  • U.S. Government Bonds
  • Investment grade corporate bonds, rated A to AAA by Standard & Poor's
  • Utility and infrastructure stocks
  • Municipal bonds, rated A to AAA by Standard & Poor's, and insured municipal bonds.
Unfortunately, these investments are not risk-free. But when combined with different types of stock funds, they help reduce the wide swings in performance of your overall holdings. When on investment zigs, the other zags.

You can find information on the best-rated bond and utility mutual funds at www.morningstar.com.

Stick with funds that show the most consistent performance year by year. In addition, you want to invest in the funds with the lowest annual expense ratios.

Remember that bond prices and interest rates move in opposite directions. So if interest rates rise, bond price fall. The longer the maturity of the bonds held by the fund, the bigger the price decline.

The best bet today? Invest in shorter-term bond funds. The pay higher yields and the price don't drop as much when rates rise.

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Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.


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