The Fed, the Taper and You

tyler

Wednesday’s Federal Reserve announcement is almost certainly the most eagerly anticipated, and perhaps the most consequential, in years.

Economists, global policy makers, wonks and investors the world over are all waiting and watching to see whether, or by how much, the Fed cuts back or tapers is purchases of Treasury and mortgage backed securities.

As you surely know, the Fed has been buying securities for years, bulking up its balance sheet as it tries to inject money into the economy and keep interest rates low and growth rates up. But at some point, all that bond buying has to stop. It’s simply not good policy, or financially prudent, for the Fed’s balance sheet to grow to, well, to infinity and beyond.

Market watchers have long known that the day would come when the Fed would pull back, and Chairman Ben Bernanke himself has signaled it over and over again. So at least some of the impact of “the taper” is surely already reflected in stock and bond prices.

For you as an individual investor, days like Wednesday are probably times to follow the advice of a guy I admire as much as anyone in the money business, Jack Bogle, founder of the Vanguard Group of mutual funds. Bogle’s traditional advice when the sands are shifting: “Don’t do something. Just stand there.”

There are exceptions to that wisdom, of course. But for the most part, days like Wednesday are good times to let the market’s elephants collide with one another and great times for you to sit it out and wait until the dust settles.

-Follow Tyler on Twitter @TylerMathisen

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