Monday, June 15, 2009
As people have watched all the bailout money go to the big banks, insurance companies, and sadly Chrysler and GM, many have correctly assumed that inflation will rear it's ugly head. The question is, when? Even thought the stock market has had it's best 14 week run since 1975, many people are still holding cash in CD's and money market accounts. Traditionally, these products are not a good hedge against inflation. Yet, with last year's stock market crash, many are understandably afraid of putting too much money back into the market. They would rather get a 1-2% return on their cash than suffer another loss like last year's. The problem is, most people are buying 6 month to one year CD's which are yielding less than 2% on average. What else can they do? Well, for one thing, try to stretch out your maturities by using a CD ladder. Instead of putting all your money in one year CD's, try keeping some there, but moving some to 2 year CD's and 3 year CD's where you will earn a higher yield. While it's true that inflation is coming, it probably won't come as soon as most people think. Spread your money out to protect yourself and earn higher rates in the meantime. Other areas to hedge against inflation for more aggressive investors would be in the following areas: Gold, Silver, TIPS, and Energy stocks or EFT's. Diversification is still the name of the game and just as you would not want to put all your money in stocks, you should also not have all your money in cash! Will Treasuries be the next bubble?