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Yoshikami: Bernanke Gives Hints About Investment Strategy

Thursday, 13 Dec 2012 | 10:30 AM ET
Ben Bernanke
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Ben Bernanke

The Federal Reserve announced this week they would keep interest rates low for a significant period of time; there's no news there.

But in a surprise announcement, they are not only significantly increasing their quantitative easing program by buying more Treasurys, but also setting targets for unemployment and inflation rates.These targets will act as guidelines for when interest rates might begin to normalize and begin to inch up.

Investors - This is a historic move by the Federal Reserve and one on which you should pay attention.

(Read More: Morici: Fed's Easy Money Policies Will End in Tears)

What's important about these measures is it finally gives some clarity regarding an exit strategy from a Federal Reserve policy that has been so controversial. It also provides a road map for investors regarding which asset classes might be more appealing as they withdraw the current easy money policy.

(Read more: Why the Rush to Fixed Income May Be Dangerous)

Clearly the Federal Reserve is attempting bid up risk assets in order to increase consumer wealth. Equities are the new tool to buoy the consumer as real estate continues to flounder. Free and easy money will likely fuel equity gains.

"Listen to Uncle Ben. Integrate the hints he provides into your strategy. Don't stand still and wait to adjust your strategy until unemployment gets to 6 1/2%." -Michael Yoshikami, CEO, Founder, Destination Wealth Management

And importantly, investors should carefully consider the wisdom of holding long dated bonds. When the Federal Reserve's press release was first issued, the bond market sold off. Why? The finish line appears clearer for the end of the longest bond rally in decades.

Don't think for a second the bond market will sell-off only when we get to 6.5% unemployment. The reality is any meaningful decline in the unemployment rate will cause weakness in the fixed income market.

Imagine when unemployment hits 6.99%? The psychological impact on the bond market will be huge and will be shocking to most fixed-income investors who have relied on bonds to provide income without capital loss. It will be a rude awakening.

Listen to Uncle Ben. Integrate the hints he provides into your strategy. Don't stand still and wait to adjust your strategy until unemployment gets to 6 1/2%. If you wait until that data point occurs, you'll have missed the opportunities available, as well as fully participated in the obvious risks as the economy continues to heal.

TV Programming Note: Mr. Yoshikami will be a guest on CNBC's "Power Lunch" all this week.

Michael Yoshikami, Ph.D., CFP, is CEO, Founder and Chairman of the DWM Investment Committee at Destination Wealth Management. Michael is a CNBC Contributor and appears regularly on the network. DWM is a San Francisco Bay Area-based independent money management firm that provides fee-based wealth management services to institutions and individuals around the world. Michael was named by Barron's as one of the Top 100 Independent Financial Advisors for 2009, 2010 and 2011.

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