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Publication: Investor's Notebook
WORRY, YES, BUT DON\'T OVERDO IT

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       Investor's Insight - Friday, February 3, 2006           
          "A Digest of Investment Opinion From the 
             World's Leading Financial Advisers"


Comment The Post Below...

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WORRY, YES, BUT DON'T OVERDO IT
by Scott Burns

Q: A recent article suggests that incoming Federal Reserve 
Chairman Ben Bernanke faces quite a challenge: "a housing-
bubble-triggered consumer recession and deflation, exacer-
bated by foreign flight from the dollar and bonds." How 
should that affect my investment decisions? -- D.C., Dallas

A: It shouldn't affect your investment decisions because 
neither event has happened and may not happen. After years 
of declining mortgage interest rates and rising home prices 
-- an environment that is forgiving in the extreme -- we 
may finally be facing a tougher period. It may not, for in-
stance, be possible to make more money by where you buy 
your house than by where you work.

Some giddy and witless buyers of houses will get foreclos-
ed. 

That's not the same as a bursting housing bubble.

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Similarly, while a good case can be made that foreign 
governments may, repeat may, buy fewer government secur-
ities in the future, the conditions that have brought for-
eign money to be invested in the United States haven't 
changed. If they change, it will probably be slowly.

Here are the two reasons Bernanke may have an easier time 
than many expect:

We're still the consumer of first and last resort. The 
world is a long way from developing a substitute for Amer-
ican buying power. As a consequence, foreign governments 
need us to maintain political stability. Think China.

The United States is the most developed and regulated fin-
ancial market in the world. We have laws, contracts, prop-
erty rights and respect for intellectual property that are 
the envy of most nations. As a consequence, money that acc-
umulates abroad is likely to continue to see the United 
States as a safe harbor. Foreigners will invest in our 
government bonds, and they will also buy expensive houses. 
Skeptics should listen to the languages spoken in places 
like Naples, Fla., and Scottsdale, Ariz. 

The uncertainties we face call for broad diversification of 
investments.

Q: We are a retired couple with about $1.15 million in 
stocks and bonds. We also own a house worth about $350,000, 
and we have no debt. We are considering placing, at some 
point, a large part of our savings -- say, $1 million -- 
into a joint life annuity with increasing payments in order 
to use up most of our savings if we live as long as the mor-
tality tables predict. I am 71. My wife is 61.

Would there be any advantage in waiting a number of years 
before buying the annuity? Would this be too risky in that 
the insurance company paying the annuity could possibly go 
bankrupt? Are there other problems with this idea? Our in-
vestments are in a variety of index funds, about 50 pe 
                            
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