Newspaper article St Louis Post-Dispatch (MO)

A Few Financial Leads for the New Year

Newspaper article St Louis Post-Dispatch (MO)

A Few Financial Leads for the New Year

Article excerpt

In matters financial, it's tempting, and often necessary, to take a short-term view: Is there enough money in the checking account to cover next week's bills? How did my mutual fund do last month? Should I refinance now, or wait til next Wednesday?

But at least once a year, it's worth taking a long-term view and remapping strategy.

Here are some developments you can expect in 1994, and what to do about it.

The economic recovery will continue in its slow, meandering way. This is good news for income investors, who know that any temporary jump in inflation will prompt the Federal Reserve to nudge up interest rates, which will prompt bond traders to sell, which will prompt bond prices to fall, and fund values to suffer.

A good idea for income investors putting money into the bond market, suggests Arthur Steinmetz, manager of the Oppenheimer Strategic Income Fund, is to invest with a "barbell" approach. Steinmetz believes that short-term interest rates will rise faster than long-term rates; a development which flattens the yield curve and falls hardest on investors in medium-length securities. If you're investing for five years, he suggests, don't just buy five-year notes and bonds; fill up with six-month Treasury bills (which will be able to catch increases in rates every time you reinvest them) and long-term 20-year bonds, which should be relatively unaffected by shifts in short-term rates.

What was hot, will be not. These investments won big in 1993: utility stocks, emerging Asian and Latin American stocks, initial public offerings and, surprisingly, in the midst of a noninflationary, lukewarm recovery, gold. But don't expect the same next year.

"When investors see small markets soaring, their enthusiasm often runs ahead of reasonable prospects," said David Beckwith, co-manager of John Hancock Freedom Pacific Basin Fund. …

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