2013 And 2014: Where to Invest and Where Not To

Watch out - if you have money to invest for 2013 and 2014 and think you know where to invest it. If you plan on investing money in bond funds be very careful, because you may end up watching your money evaporate. Here's why, and where you might want to consider investing for both income and growth.

Before we get into where to invest and where not to invest you need to understand something. The central bank of the USA (the FED) has employed "quantitative easing" in recent times in order to inject money into the system and stimulate the economy. They are considering doing it again by buying even more of our own longer-term debt securities called T-bonds and T-notes as well as other longer term debt obligations, or bonds. Meanwhile we still have an unemployment rate of over 8%, and a lackluster economy with a record $16 trillion in national debt.

As a result of heavy buying in these debt securities bond prices have gone up and interest rates have hit record lows - which have made bonds and bond funds a good place to invest money in recent times. Meanwhile, the credit rating for the USA's debt was recently downgraded for the first time in modern times, and at least one major independent rating service has warned it could be downgraded further. If this happens interest rates could zoom upwards in 2013, 2014 and you better know where not to invest money.

Investing money just got more difficult, especially if you have been investing money in bonds and bond funds for higher interest income and relative safety. IF or WHEN interest rates start to climb significantly, bonds and bond funds will lose money. That's the way it works, period. Where not to invest money now: long-term bonds and long-term bond funds. In the summer of 2012, the 30-yr U.S. Treasury bond (T-bond) was yielding less than 2