Today's low interest rates are hitting people hard. Many have tolerated the dismal yields on CDs and money markets with the hope that rates will recover soon.
But they shouldn't hold their breath. A survey of historical returns shows that today's rates are very close to normal. Since 1926, Treasury bill rates have averaged 3.7 percent annually.
Confronted with this reality, people must find ways to make their money work harder.
The dread of assuming a higher risk often discourages people from moving to higher yielding corporate bonds, municipals and other fixed income securities. But what's so safe about earning a negative return from a CD? After deducting taxes and inflation, today's rates are earning a negative yield.
If you like investing in individual bonds, you can assemble a bond ladder of different maturities to reduce the risk of rising interest rates and longer maturities. Investors who want professional asset management can diversify through income oriented mutual funds. However, be aware that a fund's value will fluctuate with the rise and fall of interest rates.
Don't shy away from stock mutual funds simply because you live on a fixed income. If you're a younger retiree, you need to maintain a growth component in your portfolio.
In addition, utility stock funds and balanced funds can offer income and growth in moderate doses.
Managing your money is serious business, especially when assembling a securities portfolio that meets your expense needs. Don't hesitate to consult a professional advisor.
One of the most dangerous bits of advice floating around is telling people to do it themselves and look for a discount stock broker who will give them the lowest price per trade. If you aren't an experienced market trader, you should be using professional managers, and you should be trading so often that a $10 commission difference per trade makes any difference to you. Most people who lose in the stock market try to pick their own stocks, use discount brokers, and don't have a diversified, professionally managed portfolio. Of course, the very magazines that run great articles comparing trade commissions at different discount brokerage houses are the very magazines that have pages of expensive advertising from discount brokers -- so they're not about to suggest to you that perhaps your best deal is to avoid the discounters and pay for a more profitable and safer portfolio.
About the Author
For twenty years Adam Starchild
has been writing books about these subjects, and they are published by a variety of publishers. They are available in many bookstores and public libraries.
For more information on global investing, see
The Offshore Entrepreneur.
Copyright © 1995 by Adam Starchild
The Investor's Library has reprinted this copyrighted article with the permission of the author.