The challenge and cost of playing it safe with your investments has never been higher than it is right now. Conservative investors and retirees looking for non-stock type investments are finding terribly low yields and interest options. Adding to this already historically low interest environment, the Federal Reserve announced last week a change to the way they manage inflation. This change is explained in this week’s WMR. I’ve heard several times this year that FDIC member banks were offering less than 1% interest on multi-year CD deposits. If you pair higher expected inflation with lower expected interest it equals your money losing purchasing power as time goes on. I’ve many times referred to the generation who are now in their 60’s and 70’s as the “interest rate victim” generation. Here is some perspective on how hard this age group has had it when it comes to interest rates. In 1979, the year I was born, the federal funds rate reached a high mark of 20.0% and today that same federal funds rate is .25%. In the 80’s when this age group was borrowing money to buy homes, automobiles, and start businesses, they paid the highest interest rates in US history. Now trying to find decent interest for any conservative portion of their nest egg is a great challenge with the lowest interest rates in US history.
So, what do you do if you want or need to earn more interest, but you can’t or aren’t willing, to take more risk in investments like the stock market? Here is the answer - you call our office. We have been busy helping people address this challenge with real solutions that don’t increase client’s risk of loss, but do give them some real opportunity to get a respectable return. It’s not a one size fits all world and there is a vast suite of options to consider. Given those options, there is likely a choice that will fit your needs and goals. You do not have to settle for such a low interest rate, that when you adjust for inflation, it equals a negative real return.
As always, we hope you find the Weekly Market Review both interesting and informative.
Trevor N. Coe, CFP®