Defensive Investing for the Recession

by Dual Income No Kids on March 19, 2008 · 0 comments

Hi All,

If you’ve been following the news recently, you probably know that some people think America is heading into a recession. While its hard to predict the economic future, the outlook certainly looks gloomy.

So, if you want to take a defensive stance with your personal finance, you might consider investing in bonds. Here are two options.

1) Federal Savings Bonds: Savings bonds are stodgy – the kind of thing your grandpa would give you as a kid. However in the current environment savings bonds and specifically series I bonds, have some attractive aspects. Among these are safety and inflation protection. In terms of safety, the principle and interest payments of I bonds are guaranteed by the full faith and credit of the government, making them some of the safest securities on earth. Second, the I bond is linked to the consumer price index, so buying them partially covers you against inflation.
You can get I bonds at any bank or from treasurydirect.gov.

2) Municipal Bonds: Municipal bonds are securities issued by local governments (clicky). In today’s environment, there are at least three reasons to consider this asset class. First, the Fed is cutting interest rates which usually increases bond prices. Second, some municipal bonds are free from federal taxes. Since the presidential election isn’t settled, nobody really knows what future tax rates will be. Third, municipal bonds are one of the safer asset classes. In an climate when stocks are perceived as risky – like today – bonds prices may go up. For more info on Muni’s click here.

We own about $500 worth of the Series I bonds, but don’t have municipal bonds.

Best,

James

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