Tag Archives: CDs

Savers vs. Investors

The last two decades has been devastating for savers, especially retirees.

A Wall Street Journal article noted that retirees continue to get squeezed and are concerned about making their savings last. While the Dow Jones Industrial Average (DJIA) index has tripled since the trough of the financial crisis, the average one-year CD has not paid more than 1 percent since 2009.

The DJIA stood at 26,405 (as of 1/25/2018), a more than 20 percent increase since the 2016 election, and the value of the digital currency. As a result of a strong stock market performance, stocks may have become an outsized portion of investors’ portfolios, thereby necessitating some rebalancing.

This means that investors who have benefited from the stock markets rise may find themselves taking more risk than they realize.

If you are concerned about stock market risk, call us.


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The right time to invest?

time to invest

Is this the right time to invest?  Good question.

Here’s another good question:  when is the best time to plant a tree?
The answer:  “Now.”
Here’s a better answer:  “When you were a child.”

Time is our most precious resource.  A wasted moment is lost forever.  Trees take time to grow.  The same is true for wealth.

We are often asked “is this a good time to get into the market?”  The answer is that there is no better time.

Here’s why.

If you put your money in a savings account you might get about 1%.

At that interest rate it takes 70 years to turn $100 into $200.

If you could grow your money an average of 5% per year, that $100 would grow to $200 in 15 years.
If you can get 6%, it would take 12 years to grow to $200.
If you can get 7%, 11 years would get you to $200.
If you can get 8%, 10 years would get you to $200.

At 15% your money doubles every 5 years.

We are big advocates of people working hard for their money.  But we are just as insistent that money should work hard for them.  Why be a hard worker with lazy money?

Investing is one of those things that people put off.  But doing so wastes their most valuable resource:  time.

If you’re not happy with the way your money’s working for you, check out our website or give us a call.

No sales pitch, no pressure. Just good advice. That’s the reason we won the 2015 Suffolk Small Business of the Year award from the Hampton Roads Chamber of Commerce.

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Bond yields worldwide under 1%

Bank of America said that 45% of all government bonds worldwide yield less than 1%. Central bankers from around the world meet today to find a way of spurring economic growth. Most have adopted a low interest rate strategy. That’s good for stocks, but it’s devastating for savers who are making less than zero once inflation and taxes are factored in.

Speculation that the European Central Bank will start buying debt in the year ahead pushed German 10-year yields to a record low of 0.866 percent last week. The rally helped drive demand for Treasuries and other notes as investors sought higher interest payments than they can get in Europe.

“No one’s talking about rate hikes in Europe for several years,”

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Key Rates

  • LIBOR (1-month)  0.19%
  • Fed Funds  0.00-0.25%
  • 6-mo CD  0.40%
  • 1-yr CD  0.56%
  • 5-yr CD  1.23%
  • 2-yr T-Note  0.30%
  • 5-yr T-Note  1.02%
  • 10-yr T-Note  2.13%
  • 30-yr T-Bond  3.28%
  •  Prime Rate  3.25%
  • 30-yr Mortgage  4.10%
  • CPI – Headline  1.10%
  • CPI – Core  1.70%
  • Money Market Accts.  0.47%
  •  Money Market Funds  0.02%
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The Bottom Line on CDs

The Oppenheimer Funds put up a graphic that illustrates the “real” return in CDs (Certificates of Deposit) over the last decade.  The chart shows that the yield on 6 month CDs for people in the highest tax brackets after taxes and inflation is less than zero for all but one year.

For example, in 2012

  • a CD paying 0.2%
  • minus 35% tax,
  • minus 1.8% inflation
  • provides a -1.8% “real return” to the saver.

Over the long term, “safe” investments have generated only a very modest returns except for short periods associated with unusual economic conditions such as the “Great Depression” of the 1930s or the high inflationary period at the end of the 1970s.

This is not to say that CDs and money market funds do not have a place in an investor portfolio.  They are a source of readily available cash, and for people willing to accept a modestly negative “real” rate of return, they provide an asset class that is not going to fluctuate with the stock or bond market.

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