The Yin and Yang of Investing in Today’s Markets

It is a confusing time for investors. For the last two years, market experts, forecasters, and pundits have been consistently wrong about the economy and the direction of the markets. Despite these issues, I am encouraged by the many opportunities available for investors to earn solid returns.

But before I jump into some investment ideas that will work, let’s review some things not to do…

• Don’t get caught up in any “make money fast” schemes, whether it is hot stock tips or magical trading systems. As my fellow Investors Alley editor Tim Melvin noted last week, “The statistics on retail trading are readily available, and the evidence shows that over 90% of individual traders will fail to make money over time.”
• Don’t buy stocks based on a hunch or because you like the product or see the news calling it the next hot thing. By the time a stock becomes the “next hot investment,” most of the money has been made by investors who bought before the hype started.
• It’s a small thing, but don’t use stop-loss orders. In my experience, they turn into guaranteed losses. You should invest in stocks that, if they go down, you would want to buy more shares.

Don’t let predictions of a pending market crash drive your investment decisions. I have been in this business for more than 30 years, and there is a new “crash is coming” prediction every week. None of them come true.

Let’s look at some current investment opportunities with those dont’s out of the way. Over the last two years, the Federal Reserve has massively increased interest rates. When rates on everything interest paying were near-zero percent, it made little sense to invest in safe but no potential returns investments.

Money market mutual funds (MMF) now sport yields around 5%. A few years ago, these funds paid a fraction of one percent. MMFs are 100% liquid and earn interest daily. I recommend using these funds for emergency cash or as a short-term parking place. I don’t think MMFs are appropriate as long-term investments. They are safe, but interest rates could fall quickly.

Bond investments allow you to lock in higher interest rates for longer terms. A bond pays a fixed rate of interest until a specified maturity date and the face amount at maturity. Typical bond mutual funds or ETFs are not a good idea. They don’t hold bonds until maturity, so you don’t get the benefit of a…

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