Investors across the nation should not be blamed if they give thanks for the continuing easy-money policies of the U.S. Federal Reserve. With Janet Yellen poised to assume that institution‚??s chairmanship soon, it appears that quantitative easing will continue for the foreseeable future to add extra stuffing to the markets, as well as to pour gravy on top of the veritable feast led to recent record highs for both the Dow Jones Industrial Average and the S&P 500. Indeed, Yellen is expected to continue current Fed Chairman Ben Bernanke‚??s practice of tying ongoing stimulus efforts to the state of the U.S. economy.
But when the economy eventually attains a sufficient strength in the eyes of Yellen and her colleagues at the central bank, the Fed leadership has announced it plans to start to taper its monetary stimulus — a move many investors dread. While Yellen may be an even stronger proponent of the stimulus than Bernanke, the economy should at some point reach a level at which even she will support shrinking the Fed‚??s stimulus. Without easy money to spur the markets, investors fear the current upward trend of stocks will at best stall and at worst plummet. Since the economy should be stable by the time tapering begins, that worst-case scenario is extremely unlikely, but investors understandably remain wary of the effect tapering will have.
As an investor, what is the best way to preserve capital when the stimulus cuts begin? Former Army serviceman Tom Griffith is seeking to preserve the gains he has generated during the recent market highs when stocks inevitably start settling down. Tom is in the process of looking for a stable fund for his 401(k) money that meets his modest requirements of providing capital preservation and a yearly return of greater than 1%. He currently is invested in Scwab Tax-Free Bond (SWNTX), a fund which may be similar to a choice available to you as a 401(k)-style investment. But he wants to know if there is a better place for his money. After serving his country and saving his hard-earned money, Tom turned to Doug Fabian, editor of the investment newsletter Successful Investing, for guidance about how to avoid losing money, if tapering deflates the markets. Doug offers valuable tips to protect your money.