Make Your Money Work Harder When Interest Rates Are Low
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 not be trading so often that a
$10 commission difference per trade makes a 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.
