Don't worry about 'liquidity squeeze'

A: Dear Danny,
First let's make sure we're on the same page in defining "liquidity squeeze." If we define this in terms of a rising effective federal funds rate, then you're expecting the Fed won't be able to keep federal funds at or near its current target of 5.25 percent. A liquidity squeeze has banks competing for reserves and causes federal funds to trade substantially above the target.

I don't think you should make investment decisions based on that premise. The Fed and other central banks have been injecting liquidity into the monetary system to keep funds available.

We can debate whether this is "bailing out" some bad decisions made by mortgage-backed securities investors, but providing needed liquidity to preserve orderly financial markets is an important component of a central bank's job description.

To keep your finger on the pulse of the CD market, have Bankrate's CD Rate Trend Index delivered as an e-mail every Wednesday.

It's unlikely that a mostly CD portfolio is right for you as a retiree. I'd suggest you meet with a fee-only financial planner and have him or her review your portfolio, sources of income in retirement and financial goals. The Bankrate feature, "Financial planners: not just for millionaires anymore," can help you find one. You don't have to do what he suggests if you aren't comfortable with his recommendations, but it's worth a listen.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "financing a home," "saving & investing" or "money."