Returns on Mutual Funds Got You Down? Preserve Capital by Sticking with a Savings Account Until Mid 2013
The stock markets tumbled yesterday because the Election is over the focus is once again on the "Fiscal Cliff". Both Republicans and Democrats have reach across the aisle and work together to resolve these issues. Failure to do so quickly will bring even more declines in the markets and another recession if a compromise isn't made.
Until both parties can finally get together and resolve these issues you're better off lowering your risk in stocks and mutual funds. Sell and placing those funds into a savings account or a bank money market account. Granted, the return you get on either type of account is dismal but it's better than losing some of your principal in equity declines.
Average savings rates in this week's rate survey by the FDIC are at 0.08 percent and average money market rates are at 0.12 percent. While these rates are really low, the best savings rates and best money market rates at banks are many times the average. Right now the highest savings account rates on our rate list are at 1.04 percent with an APY of 1.05 percent. The highest money market rates on our list are also at 1.04 percent with an APY of 1.05 percent.
You won't keep up with the pace of inflation with a 1 percent return but you won't lose any of your money either. Keeping your monies in a savings account gives you the flexibility at anytime to withdrawal your money and invest in equities. If you temporarily placed your money in a certificate of deposit account you would have to wait until the CD account matured or get hit with an early withdrawal penalty.
Who knows when both parties can come to a resolution. What probably will happen is the lame duck Congress won't act to do anything and we will have to wait until 2013. Unfortunately a big decline in the equities market will be the fire that gets the parties talking so I'm positing my portfolio to be able to avoid the declines and get a bigger return when the parties come up with a deal. Of course if my analysis is wrong I will miss out on some of the gains but when a deal is reached I can quickly change my game plan.
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