Like a horde of punch drunk fighters, investors are reeling from market deterioration and fearful of moving back into stock investments. They are frustrated with the low rates available with money market funds and certificates of deposit. What people want most are alternatives that will enable them to sleep at night, and will allow them to react to inevitable developments. These inevitable developments are increased taxes and higher interest rates. In case the news has escaped you, the government is printing money at an incredible rate. This creates an increased money supply – inevitable inflation. The government is also borrowing money at an incredible rate – this creates debt, and higher taxes will no doubt follow.

Municipalities and other governmental bodies are in the same predicament as the federal government, but they cannot print money, they can only borrow it. They are forced to provide competitive rates to borrowers, so tax free municipal investments are looking very attractive. The concerns are the financial stability of the borrower, like the state of California, and the duration of the municipal obligation – too long and you face loss of value when interest rates start to climb. The best options are short term funds which hold a diversified basket of bonds, and unit trusts which can currently generate rates of 4-5% completely free of taxes, both federal and state.

Bonds, issued by stable, profitable corporations, are also looking very attractive today. Major companies have a constant need for capital, and issue bonds to generate this capital. These rates are generally higher than government issues because they are not supported by the United States treasury. Short term corporate bond funds are delivering very attractive rates, as are unit trusts of the same type. It is important to be sure about the credit quality of the bonds in the funds or trust, but even top rated issues are paying attractive rates.

Tax deferred fixed annuities are another source of competitive rates. These instruments are backed by quality bonds and offer the extra benefit of tax deferral, which will be of increasing benefit in the years ahead. The strongest insurers are offering annuities with good rates and short durations, so there is protection against inflation. We are happy to provide lists of recommended investments in each of the areas above. Please feel free to contact us!