Is the war getting you down about investing?
- Alan Lavine and Gail Liberman
Some are concerned that the situation in Iraq could throw the economy into another recession. That spells bad news for stocks and good news for bonds.What should you do?
Unfortunately, no one really knows what future stock prices will look like.Fidelity Investments’ website (www.Fidelity.com) serves up some interesting commentary about the war and investment strategies.
The report says that history favors investors. The stock market drops at the onset of war. But when the outcome of the war becomes more certain, stocks prices tend to rise. That wasn't the case with the Vietnam War because we had high inflation and interest rates. That hurt the stock market. Fidelity suggests:
If you are investing for the long term of five years or more, you can hold onto your stock funds. If you need money over the short term, play it safe and stick with cash investments.
Avoid chasing after hot investments that go up during wartime.
Take an optimistic attitude toward investing over the long-term.
Keep socking away money in your retirement savings accounts.
Walter Frank, chief investment officer for Moneyletter, an Ashland, Mass.-based investment report, says that economy is still sluggish.
Nevertheless, he sees corporate profits rising at 7 percent annually. That isn't fantastic, but it is good news. We might not earn the historical 10 annual average return on stocks in the near future. It might be more like 7 percent. No one knows for sure.
Six months from now, he is forecasting higher economic growth, flat interest rates and higher U.S. and foreign stock prices.
Frank recommends that investors stay well-diversified in stocks, bonds in cash.
Conservative investors should have 10 percent in money funds, 45 percent in bond funds, 35 percent in domestic stock funds and 10 percent in specialty funds, like convertible bond funds and inflation index bond funds.
Moderate investors should have 10 percent in money funds, 15 percent in bond funds, 10 percent in international stock funds and 65 percent in domestic stock funds.
Venturesome investors should have 15 percent in money funds and 85 percent in domestic stock funds.
Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).
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