$tarrBuck for March 31, 2008: What’s hot, what’s not?

$tarrBuck for March 31, 2008: What’s hot, what’s not?

Financial Markets are going through a credit crisis. That means that risk, and illiquidity are severely discounted — they carry low prices and high yields.

Everyone needs liquidity — don’t bet the rent or tomorrow’s dinner. As always, an investor’s portfolio should be arranged with a balance between safe assets and risky assets. See the $tarrBuck Report, June 25, 2006. If you arranged your portfolio this way before the equity market decline (starting in November 2007) you’ve had the benefit of a well-balanced portfolio.

Safe liquid assets are hot; they carry high prices and low yields. It’s a good time to sell; a poor time to buy.

Risky and illiquid assets are cold. If you can handle the risk and illiquidity, it’s a good time to buy. It’s a bad time to sell.

What’s hot?

The following asset classes have appreciated in price during the credit crisis. It’s time to think about reducing holdings here or not adding to them:

TIPS (Treasury Inflation Protected Securities)

Long-Term Treasury Bonds

Gold

Oil, Copper, Commodity funds

What’s not? The yields on the following asset classes have climbed during the credit crisis. It’s time to think about augmenting holdings here; it’s too late to reduce them now:

Preferred stocks (fixed income)

Municipal bonds (fixed income tax advantaged; best purchased as exchange-traded muni bond funds)

REITs (best purchased as no-load mutual funds; $tarrBuck’s preference is Third Avenue Real Estate Value Fund, TAREX)

Common stocks (best purchased as exchange-traded index funds, e.g. SPY, or no-load mutual funds)

Financial firm common stocks (mutual funds, exchange traded funds; picking individual winners is hard).

Value stocks ($tarrBuck’s preference is Third Avenue Value Fund, TAVFX).

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