Up your gold ante
- Alan Lavine and Gail Liberman
For bond funds, the worst-case-scenario could be rising interest rates if you're not careful.
Mark Skousen, Ph.D., economist and publisher of Forecasts & Strategies (www.InvestmentU.com), suggests that you consider avoiding it.He was expecting U.S. Treasury bond rates to increase even more as foreign investors stop buying.
Foreign governments have been bailing out the United States for several years, buying up at least 70 percent of our federal debt. At one point, they were financing our ballooning deficit to the tune of $4 billion a day.
Bond buying has already started to decline from a peak quarterly rate of more than $400 billion in early 2004, to just $100 billion in the most recent quarter, he said. At the same time, the federal deficit is expected to reach more than $500 billion in fiscal-year 2005.
"More debt, fewer buyers is a double whammy," Skousen warns.
Skousen recommends investing in gold and reducing your holdings in Treasury securities, municipal bonds and municipal bond funds.
Gold prices were dropping after Skousen's remarks, but an ABN Amro report still expected the average price of gold to increase to $485 an ounce in 2006.
Besides buying gold, Skousen recommends silver and palladium stocks.
Precious metals mutual funds may be the easiest way to make these investments. You get a professionally diversified portfolio of mining stocks. Owning gold bullion, Skousen says, also may be a good move. Gold mining stocks and bullion prices do not always move together.
But beware. Gold is volatile, and can fall in price as quickly as it can spike up. So experts say it's often best to use gold as a stabilizer in your portfolio, and not bet the ranch on it.
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). Al and Gail's new book is Rags to Retirement, (Alpha Books).
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