How should you invest in 1988?
The Times asked six leading financial experts to decide how they would invest $10,000 for 1988, in both conservative and risky portfolios. While specific recommendations varied widely, one sentiment emerged: This year's investment climate demands basic investments that stress liquidity, safety and diversification.
Why? The economy is in flux. No one really knows for sure whether interest rates, the dollar, inflation or other key indicators will go up or down. Experts are sharply divided on whether there will be a recession soon and whether stocks, bonds, gold and other investments will shine.
Lacking a foolproof crystal ball, all experts advise keeping at least some money in safe and liquid investments such as money market funds, Treasury bills or bank accounts, where it can be tapped for an emergency or used as a war chest to take advantage of investment trends that emerge. These cash equivalents also serve as good hedges against recession, deflation or other hard times.
For diversification, experts generally agree that investors should keep at least some money in stocks or stock mutual funds, positioned for a possible rally. Some also like inflation hedges such as real estate investment trusts or gold bullion coins.
Here are the experts' picks:
Siebert, chairman of a New York discount brokerage bearing her name, in 1967 became the first woman to purchase a seat on the New York Stock Exchange. Her advice: Play it safe this year with your initial monies, but also position some funds to profit from a rebound in the stock market.
For a conservative $10,000, Siebert recommends putting $5,000 into a six-month certificate of deposit or money market fund. "Everybody needs $5,000 in the bank where you can get at it fast," Siebert advises, although she did not recommend a specific bank or fund. The national average yield on six-month CDs is about 7.25%, while money market funds are yielding an average of 6.69%.
Her other $5,000 in the conservative portfolio goes into a no-load mutual fund investing in mortgage certificates backed by the Government National Mortgage Assn. (Ginnie Mae). These funds, now yielding anywhere between 8% and 12%, are a good source of steady income, although there is risk that the yields and share prices won't hold up. She did not recommend specific Ginnie Mae funds, but most major fund companies offer them.
For her risk-oriented $10,000, Siebert likes $5,000 in a mutual fund investing in high-technology growth stocks. The other $5,000 should go into a mutual fund investing in general growth stocks. Both of these types of mutual funds performed poorly in 1987 but have the potential to profit nicely if the stock market rallies, Siebert says. Again, she did not recommend specific funds in either category, but many major fund companies offer them.
Martin E. Zweig
Zweig, one of several market gurus who was decidedly bearish before the crash, is publisher of Zweig Forecast, a New York-based newsletter that is rated tops in performance since 1980 by Hulbert Financial Digest, a leading newsletter ranking service. His stance: Be bullish, at least for now, on stocks and long-term bonds because interest rates will fall early in 1988 as the economy slows down. But be flexible if conditions change. "I'm liable to turn bearish and sell something this year," he says.
For a conservative $10,000, Zweig advises one-third in a cash equivalent such as Treasury bills (although individual T-bills are usually sold at a minimum of $10,000 face value). The other two-thirds, he says, should be in Treasury bonds with maturities of 20 to 30 years. They now yield around 9%, "a big premium over the inflation rate," although they could fall in price, as they did last year, if interest rates rise.
For his risky $10,000, Zweig likes $4,000 in a cash equivalent such as Treasury bills, with the remaining $6,000 split evenly among three stocks: Walt Disney Co. (NYSE, current price $59.25); Northwestern National Life Insurance Co. (OTC, $22.875), and Baxter Travenol Laboratories (NYSE, $22.75). He likes these stocks based on their higher earnings potential. "They will do OK if the market does OK, but not if the market goes down."
William G. Brennan
As editor of Brennan Reports, a Valley Forge, Pa., tax and investment newsletter, Brennan is a leading expert on tax-oriented investing and limited partnerships. His view: Position yourself with quality investments that can capitalize on any scenario, because who really knows whether inflation and the economy will move up or down?