Dear John: Is this a good time to refinance my mortgage? A.S.
Dear A.S.: Unfortunately, there is no “yes” or “no” answer to this question.
This has to do with the odds. And right now the odds suggest that interest rates have a better chance of going up significantly than down.
Anyone holding a high-rate loan, of course, should have refinanced already. The rates on a 30-year mortgage went down close to 5 percent a few years back. The Federal Reserve has raised interest rates 15 times in two years in hopes of raising borrowing costs. New Fed Chairman Ben Bernanke continued that trend just this week.
But the 30-year mortgage, as an example, still averages only 5.87 percent – a far cry from where the Fed’s rate hikes should have sent it.
What could go right? Inflation could come down and the economy could cool. Then mortgage rates may go back down to super-low levels.
What could go wrong? Lots. For one thing, inflation could rise. That could scare investors into demanding a better yield when they invest in fixed-rate securities. And that higher rate would be passed on to borrowers, including those simply trying to swap an old mortgage for a new one.
Inflation could worsen for several reasons, some of which are beyond our control. There could be some world event, for example, that causes oil prices to rise even higher than they now are.
But inflation could also become more of a problem because the economy is picking up and the financial markets foresee an increase in the demand for money. That’s what I think will happen in the next few months – and that will force borrowing costs to come more in line with what the Federal Reserve wants.
So refinance.
Dear John: As a long-term investor (30 years or so), which market sector do you recommend? A.A.
Dear A.A.: The answer is: None.
“I would not pick just one sector for a long-term investor. I would pick several depending on risk-tolerance, age, need of income, income tax bracket etc,” says Tom Belisari, a certified financial planner in West Chester, Pa.
That opinion is seconded by Roger Gibson, a financial planner from Pittsburgh. “I am an advocate of multiple-asset-class investing and don’t have a particular market sector or asset class that I would recommend,” he says.
That may seem like the wimp answer, but think about it. Thirty years ago steel and video games may have seemed like a wise investment. And who would have argued that people would still be driving cars? So Ford and General Motors would have seemed like a great asset class to be in.
Things change in 30 years. And while portfolio churning isn’t wise, asking for one asset class and then sticking with that through thick and thin would seem foolish.
Diversification is the answer. Do some research and then buy some blue chip stocks, some high-growth shares and some fixed-income assets.
Send your questions to Dear John, The N.Y. Post, 1211 Ave. of the Americas, N.Y., N.Y., 10036, or [email protected].