3 Places NOT to Put Money Now

Photo (cc) by Editor B

In the post 3 Places to Put Money Now, I suggested stocks and real estate as appropriate investments for an economy that’s starting to emerge from the woods. The third suggestion — paying off debt — is always a great idea.

Now it’s time to see what investments you might want to stay away from.

Note, however, that behind these ideas is my belief that the economy is getting better: if you don’t agree and think that it’s getting worse, this is advice you’ll want to ignore.

Investment to Avoid: Long-term bonds

In the video new story above, I attempted to illustrate how bonds move in relation to long term interest rates by using a seesaw. On one end you have interest rates, on the other bond prices. So when interest rates go up, bond prices go down, and vice-versa. The longer the term of the bonds – that is, the longer it will be until the bonds mature – the more pronounced the swings.

If the economy is truly picking up steam, then the path of least resistance for interest rates is up. That’s why I’m counseling to avoid long-term bonds and long-term bond mutual funds: because if interest rates go up, bonds could get hammered.

In a recent article called Stop gobbling up bonds — they’re risky!, Money Magazine agreed. And so did this article from Forbes, saying in part…

Interest rates are at their lowest levels since the 1950s. Investors who grasp for that last percentage point of yield and buy long-term bonds are making a gigantic bet that rates will fall even further or at least hold even. Anything else will expose them to serious losses, as happened in the late 1970s. Long-term rates spiked past 13% by 1980, halving the value of some supposedly conservative bond portfolios.

So if you have a long-term bond mutual fund through your 401(k) or elsewhere, be aware of rising interest rates. I’m not suggesting that rates will rise suddenly or severely. Major interest rate increases are still months – if not years – away. Nor am I suggesting that you shouldn’t ever own bond funds: they can be appropriate for part of a conservative investment mix. But bonds are investments that shine in falling rate environments: That’s probably behind us.

Investment to Avoid: Long term Certificates of Deposit

You avoid bonds when interest rates are rising because they can fall in value. You avoid long-term CDs because of opportunity cost.

If rates do begin to rise, the last thing you want is have all your money locked up in a long-term certificate of deposit that doesn’t allow you to take advantage of higher yields. The time to lock in interest rates is when they’re peaking and expected to fall, not when they’re at historic lows and expected to rise.

That being said, there’s nothing wrong with spreading your savings around in various maturities, like money market accounts, short-term, and longer-term CDs. Then you’re prepared no matter what happens to rates. If they rise, your money market immediately pays more. If they fall, you’ve got a higher rate locked in with long-term CDs.

Investment to Avoid: Gold

In a recent article called Gold is a bubble – resist its charms, CNN/Money makes the case that gold is over-priced and due for a fall. Gold has nearly tripled over the last five years – this is a party that could soon be winding down.

From that article…

“When the economy moves from recession to prosperity, there will be little reason to own gold,” says Mark T. Williams, who teaches risk management at Boston University. “And speculators will learn the hard way that gold in times of financial stability is hazardous to investor health.”

As I suggested in the video above, behind the speculative fever that’s driven gold to historic highs is a fear of runaway inflation, global economic Armageddon and other nightmare scenarios. As an improving world economy helps dissolve some of these fears, the need to own gold will decrease, and perhaps, so will prices.

I own some gold in my portfolio, and will probably continue to, at least for the near future. But gold is in a bubble: sooner or later the music will stop – don’t be the last one standing.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
11 Secret Uses for Everyday Items That Will Save You Money
11 Secret Uses for Everyday Items That Will Save You Money

These are simple solutions for life’s irritations.

9 Ways to Get Cheap or Free Veterinary Care
9 Ways to Get Cheap or Free Veterinary Care

Medical care for your furry friends can be expensive. Here are some tips to take a bite out of vet bills.

The 13 Worst Types of Tickets for Your Car Insurance Rate
The 13 Worst Types of Tickets for Your Car Insurance Rate

Some types of traffic violations can drive your car insurance rate dramatically higher.

Half of All Retirees Say They Fear This
Half of All Retirees Say They Fear This

Chances are good that you share this fear. Here’s a way to overcome it.

10 Common Ways Seniors Get Scammed
10 Common Ways Seniors Get Scammed

Here’s what to watch for to make sure you don’t fall prey to some of the biggest rip-offs targeting seniors.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

7 Unusual Ways to Declutter Your Home
7 Unusual Ways to Declutter Your Home

Tired of possessions weighing you down? Here are seven ways to declutter painlessly and effectively.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

This Is the Most Popular Age for Claiming Social Security
This Is the Most Popular Age for Claiming Social Security

Both men and women are most likely to start receiving Social Security benefits at this age.

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?
Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

6 Things You Should Never Buy at Trader Joe’s
6 Things You Should Never Buy at Trader Joe’s

We love Trader Joe’s for plenty of reasons. But think twice about this handful of products.

Don’t Toss These 7 Household Items — Sell Them
Don’t Toss These 7 Household Items — Sell Them

Here’s how to earn cash as you give new life to these unwanted items.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have these documents that are crucial to their golden years — especially during a pandemic.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

Eat This Food If You Want to Avoid Alzheimer’s Disease
Eat This Food If You Want to Avoid Alzheimer’s Disease

One type of food associated with the Mediterranean diet offers especially large benefits.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on both everyday and occasional purchases.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

9 Dumb Ways You Are Ruining Your Home Value
9 Dumb Ways You Are Ruining Your Home Value

Homeowners, beware these mistakes that can drive away potential buyers.

18 Amazon Purchases That We Are Loving Right Now
18 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

15 Outrageously Overpriced Products — and How to Save on Them
15 Outrageously Overpriced Products — and How to Save on Them

Retailers mark up products by hundreds of times their cost — but you don’t have to pay the premium.

Why Half of Retirees Now Owe Taxes on Social Security
Why Half of Retirees Now Owe Taxes on Social Security

Growing numbers of seniors are paying taxes on their Social Security benefits, but you might be able to avoid this fate.

11 Disgusting Household Items You Should Toss Already
11 Disgusting Household Items You Should Toss Already

Never keep these items past their prime.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.