For the last few months, I’ve been tracking the best place for investors to stash their short-term cash and reporting the results on the blog I write for Examiner.com. That column has started to track savings and CD rates available at Seattle branches to comply with Examine.com rules. So I’m going to use this column to track the best national cash stash locations.

I use the services of MoneyAisle.com to obtain rates.  Here are current rates on a CD ladder compared to those available a month ago.

3/1/10      2/1/10

12 months      1.80%       1.92%

24 months     2.11            2.21

36 months     2.51            2.68

48 months     2.75           2.94

60 months     3.25           3.25

As you can see, rates are actually a little lower today than a month ago, but the change is immaterial. The big take-away from this data is that rates are still historically low and remain pretty flat. The good news is that inflation has been low so the real rate of return is okay. But the yellow flag is that inflation is picking up so if you want to stash your cash in CDs, keep the duration very short. No more than a year.

Modern portfolio theory (MPT) teaches that a well-diversified portfolio is the most effective and most efficient. “Well-diversified” means we must choose asset classes that are not closely correlated with each so that when one asset class is going down, another may be going up. The simplest two asset class portfolio holds stocks and bonds.

However, in the last few years, the correlation between asset classes is decreasing, for reasons no one can really explain. For example, over the last 10 years, U.S. stocks and U.S. bonds had no correlation (a numerical rating of -0.00). However, over the last three years, these two asset classes have a numerical correlation of .30, which is considered “moderate.”

Even more alarming, over the last ten years, U.S. stocks and the stocks from developed countries outside the U.S. had a correlation of .90 (”high correlation”) and in the last three years, the correlation has increased to .93. Stocks from emerging markets had a .85 degree of correlation in the last 10 years and .87 in the last three.

When I examine correlations across all asset classes for the last three years, the same pattern emerges. In fact, every asset class I tested had at least a moderate degree of correlation with all the other asset classes.

What this means for investors is that if all your using to diversify your portfolio are the traditional asset classes, it may not be as well-diversified as you thought (or hoped) in the short run. Over the long run, only U.S. bonds showed a low degree of correlation with other asset classes. Non U.S. bonds also showed a low degree of correlation with U.S. stocks.

The media is no longer welcome at the hedge fund industry’s annual conference.  The conference is sponsored by the Managed Funds Association (MFA), with over 2,400 members and includes “the vast majority of the largest hedge fund groups in the world,” according to the MFA. At the upcoming MFA annual conference, the media is banned  for the first time in the 15 years that this conference has been held.

According to Encarta, a hedge fund is “an investment company that is organized as a limited partnership and uses high-risk techniques in the hope of making large profits.”  The limited partnership nature of a hedge fund means investors in one of these vehicles have very limited knowledge of its workings,  almost no say over how a  hedge fund works and usually a once a year time frame to get out of it.

The MFA won’t say why the media is not welcome to their event and to those of us who believe in fee transparency,  this action is another reason to run away from hedge funds.  Makes me wonder what is going on, being discussed or talked about at this conference. The MFA media exclusion is in sharp contrast with the the open-door, “everyone is welcome, the more the merrier, no question is off-limits” approach of Warren Buffett at the annual Berkshire Hathaway Inc.  shareholders’ meeting.

If you’re even thinking about investing in a hedge fund, keep this in mind. Would you rather trust your money in a security in which you know what’s going on or one in which secrecy is valued?

If  you haven’t read Jim Jubak’s column from yesterday, it’s worth reading. He makes the case that the UK is close to a second financial crisis and if that happens, the US may not be far behind. The potential crisis in Britain (and the US) is close at hand due to two factors:

1. The government has issued massive amount of debt to buy its way out of the financial crisis and we don’t really know what impact that will have
2. People have not changed their “buy today on borrowed money” ways.

Jubak makes the point that the elections that will happen in England before May will give us a good idea of what will happen in the future. If the Conservative Party goes in with a large majority and a plan to right the Englsh economy, it won’t be an easy future, but there won’t be a serious crisis. If the Labor Party remains in power without a sound plan to rectify the long-term economic troubles in the economy, then he foresees serious trouble for our cousins with a financial crisis likely.

I suggest we pay attention to the English elections more then we might otherwise to have some insight into what may happen to the US economy over the next several years. I hope the English get it right.

What this means from an investment standpoint for you is to remain conservative and protect your potential downside.  Stay conservative even when the “experts” on Wall Street and the media proclaim great things. A second major financial crisis for England, the US and the world would be very hard to take now in the delicate stage of our recovery.  And it could happen sooner rather than later.

For the last six-months, I’ve done a monthly report on CD and high-yield savings rates for the personal finance column I write for Examiner.com.  I use MoneyAisle, an on-line auction house to check rates and create a hypothetical CD ladder

For the first time in six months, the check on savings rates showed that rates were the same or slightly higher. Even though savings rates continue at relatively low levels as the economy starts to climb out of the Great Recession, it seems as though we may have hit bottom. Recent economic conditions are improving as evidenced by the Chicago Fed National Activity Index as I mentioned last month.  Longer term economic forecasts are improving, even though we’ve yet to see that optimism reflected in savings rates.

This suggests that you consider two action items:

1. Consider starting to switch your longer term bond holdings to shorter term. As interest rates rise, the value of a bond fund goes down. Longer maturity bond funds are more sensitive it is to rising interest rates. So if you have a long-term bond fund, at least consider moving it to an intermediate term bond fund; if not a short term bond fund. If you have an intermediate term bond fund, consider moving at least some of your holdings to a short term bond fund.
2. Do not lock in long term savings rates. If you have a CD or bond that is coming due, consider a short term maturity date.

This is not a panic, do it right now, kind of move. As the MoneyAisle comparison shows, rates seem to be bottoming out and not moving up yet. But it seems interest rates may be moving in that direction soon. Time will tell, of course, but it is prudent to start watching thinking about your next bond move.

Earlier this week the Chicago Fed National Activity Index (CFNAI) reported that November economic activity in the U.S. improved sharply. The CFNAI is a weighted average of 85 existing monthly indicators drawn from four major areas: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories.

You can read more about this index at the Chicago Fed website.

The significance of this information seems to have hit the stock market as small cap stocks and real estate stocks are taking off. I’m not sure what the future holds, but the general mood of investors is so much better now compared to a year ago that it’s  amazing.

A client recently asked me to look at clean energy mutual funds to consider adding to the satellite portion of his portfolio. (The satellite part is distinct from the core part of a portfolio and it holds investments that an investor thinks have the chance to outperform core investments. Often this is referred to as the “alpha” part of the portfolio.)

When I investigated clean energy funds, I found that there are both active and passive funds that invest in this arena and it’s very much a case of buyer beware.

• Most funds are less than 3-years old so it’s hard to know how they will act in more than one market cycle.
• They have very few assets so if the fund is actively managed, the fund manager needs to keep a fair amount of cash on hand to take care of any fund withdrawals; it it’s an ETF, the bid/ask spread tends to be larger.
• Performance is not very good compared to the S&P 500 Index. For example,  the S&P 500’s average annual return over the last three years is -5.43%; the average annual return of the PowerShares Clean Energy ETF (symbol PBW) is -14.79%. One of the larger actively managed funds Winslow Green Growth       (symbol WGGFX) has returned -13.84% over this time frame.
• And, of course, if you invest via an actively managed fund, the expenses are very high — 1.5% or more. The ETFs have expense ratios in the .6% range.

However, if you want to investigate one of the clean energy funds for the satellite of your portfolio, here are some to research:

Actively managed funds: ALTEX, GAAEX, WGGFX

ETFs: PBW, TAN, ICLN

The following curious personal finance and economic facts caught my eye recently:

1.2 — The number of barrels of oil per person per year consumed in China

26 — The number of barrels of oil per person per year consumed in the U.S. (source: Advanced Equities Asset Management)

50% — The percentage of Americans who say they still lack confidence in the U.S. banking system (it was 46% in April),  according to Rasmussen Reports.

$740 – The average of what Americans say they will spend on Christmas presents this year; this is more than the $639 that Americans expected to spend in December 2008 according to Gallup.

61% — The percentage of Americans who support a health care plan that gives people an option to purchase a government health insurance plan that competes with private plans. (source: Quinnipaic Polling Institute).

On Thanksgiving, it’s tradition around our house to go around the table and say what we’re thankful for. So this Thanksgiving, I thought I’d go around the metaphorical table of personal finance and mention what I’m thankful for:

1. Compound interest
2. Risk management tools like insurance
3. Low-cost index funds
4. John Bogle
5. Exchange Traded Funds (ETFs)
6. Discount brokerage houses that compete to keep costs low like Fidelity, Schwab and Vanguard
7. The SEC (at least they caught Bernie Madoff)
8. The Washington Department of Finance (they regulate my business and are actually pretty helpful)
9. FINRA (the finance industry oversight organization)
10. Bill Schultheis (author of The Coffeehouse Investor)
11. Morningstar for the great investment data they provide
12. And, of course, all my clients who make it possible for me to do what I love to do.

Happy Thanksgiving to all.

There are many tests you face when you’re in charge of your personal finances. For example, your emotions influence your decisions and many will steer you in the wrong direction. Greed and fear are the two strongest emotions and following either to excess has crashed many financial plans. Immediate gratification also lurks in the background singing the siren song of “buy now, buy now, why wait” to entice you to spend everything you earn and maybe a little more. Of course, if you spend everything you earn today, you won’t have anything saved for tomorrow.

Then there are the Wall Street marketing machines that are geared to help separate you from your money. If you read any consumer money magazine, listen to CNN or watch any of the Sunday infomercials, you’re bombarded by ads and “experts” with get rich quick schemes. None of which work, of course.

So what should you do if you want to make smart financial decisions so you can get on with your life? My prescription is pretty simple.

1. Have goals based on what’s important to you.
2. If you’re still in your earning years, spend less than you make. If you’re already in the time of your life in which you’re living on your savings, then spend an amount that will last your lifetime and not more.
3. If you’re in your earnings years, save as much as you can and start as soon as you can. A good rule of thumb is to save at least 10% of every dollar you earn before taxes.
4. Set aside an emergency fund equal to about 6 months of living expenses. If you’re nearing retirement, increase this to 3-5 years of living expenses in cash.
5. Invest wisely and simply.
6. Plan for unexpected things to happen. Be flexible and adapt to changing times, but be consistent too. Be not swayed by passing events.
7. Worry about the things you can control and release the rest. You control how much you save, how much you save, the quality of your relationships and the quality of your work. Don’t worry about the economy, stock markets or anything else outside your control.

That’s it. My approach to being intentional and taking control of your finances is uncomplicated. If you need a little help implementing one or more parts of this prescription once in awhile, that’s okay. Ask your CPA and fee-only financial planner for advice if you need it. Remember that you’re in charge because it’s your money. Make smart choices and get on with your life.