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That was then. We were in our early 40's and just becoming financially comfortable and we were living good (travel, private golf clubs, new cars, moving into more expensive homes/areas, etc.). Heck we did not even know there was recession in the mid-late 80"s. We were moving on up.
This is when we starting thinking OK, now let us think about protecting/keeping some of our money in like the 9% CD's and as declared IRA's. A state agency was trying to recruit my wife. Less money then she was making in the private sector, but great benefits so she went to work for the state. She did retire from the state with a great pension and benefits.fr
As the interest on the CD's started to fall we started looking hard at other investments. Prior to that we had invested in the stock market but more in high tech, hit it rich type stuff and we had lost money. We still liked the market but decided we had to be smarter and more conservative. My wife had gotten a lump sum payout from the company she was with (another story). As I said, we still liked the stock market but decided OK, no more flyers. We started investing in a few Fidelity mutual funds (some as declared IRA's), a couple of Fortune 100 companies. We rewrote the mortgage down.
I know a goodly part of it was timing, the fact we made OK money, and never had kids (them little buggers are expensive), so even when our investments were down it was not like we needed the money.
We are now 70 and enjoying retirement since we were 62. So far have not had to tap into our reserves (facing RMD's from the IRA's this year).
You can error on either side of investing. To conservative (CD's, Annuties) or hope your investments hit it big but the best advice is if have not started planning/working toward a secure financial retirement by the time you are 45-50, you could have a tough, hard, no fun road in front of you.
Hope this helps.
Thats what good planning is all about. Its finding the right balance of income and risk .
Good planning doesnt try to rule out uncertainty,it plans for it.
Today if you try to rule out uncertainty you get punished for it. Eventually just the situation you didnt prepare for shows its ugly head.
Last edited by mathjak107; 10-21-2012 at 03:26 PM..
I was there too.
Perhaps this thread belongs somewhere other than the retirement section...
somewhere that the 30-40somethings who need that info will see it.
As to the retiree's (or at least those with paid for homes and no debt)...
having a 4-6% return on the FDIC insured CD's and such that you can actually live off of...
even if you're fortunate enough to *also* have a pile invested in stocks or other...
getting that 4-6% would be quite welcome vs the **punishment** we're getting now.
As to our children attempting to accumulate cash for homes, investments or otherwise...
well, I'll stick my neck out and say a higher rate than today's paltry would be to their net benefit as well.
only problem is historically we run around 1.5% above inflation pre tax for our cd rates so 6% in a bank and 1.7% inflation isnt reality.
The big ticket items we buy on credit like cars ,student loans ,refi's and mortgages more than likely will do our kids more good at lower rates then higher rates in the bank on their savings.
They are still saving and dont have those kinds of cash levels to over power what the low rates save them .
Last edited by mathjak107; 10-21-2012 at 05:37 PM..
mathjak107, I think the argument is that CDs are not currently running 1.5% above inflation, nor have they for a long time. I just checked some CD rate websites, which reported around 1% rates (before taxes). Inflation is not 0% or negative; in fact it is probably at least 1.5-2% annually right now. So, if a saver invests in a CD, s/he will lose money relative to inflation (i.e., will take a real loss) AND will pay at least federal income tax on the full amount of the interest if his/her income otherwise puts him/herself in a taxable bracket. As a result, people trying to save for retirement or other purposes have to take on some pretty considerable risks in order to keep up with inflation, and that has not always been true.
Correct ,the 1.5% is the long term average. Just like stocks have a long term average so do cd's.
The fact is right now is no different then when any other asset class is down.
You dont lose principal but you do lose your return at times and now is one of those times.
With the economy teeter tottering on sliding back into recession or worse possible deflation ,consumer spending dropping, unemployment and the trouble in the euro zone the out look isnt good.
While the fed controls short term rates the worlds investors control the longer rates. The investors of the world would love higher rates but the bond markets are in full agreement with the outlook of gloom the fed sees.
The two groups dont always see eye to eye. While the fed was selling bonds and trying to raise long term and short term rates before the down turn the investors wrestled long term rates away from the fed and took them lower despite the feds best efforts.
That resulted in the famous inverted yield curve we had where short term rates were higher then long term.
Its not just the fed that wants rates low, the investors of the world are keeping them at bay as well.
I think one might suggest that investing requires a skill level that is perhaps higher than savings and that is part of the angst. Savings via CD's are simpler and less complex and normally an achievable path to retirement savings, however those days are gone. Bank CD rates are comparable,fixed and the bank deposits guaranteed. Investment vehicles are not comparable in style, return on investment, security or how well managed and their ROI is not fixed.
It all goes back to what i said in the past. we couldnt care less what the labels on food said years ago.
Today everyone of us can understand and utilize that info.
We were forced to learn to remain healthy.
Well now its your financial health you need to learn about.
We used to laugh at a 5-1/4% passbook savings account at one time. Well times change,conditions change and nothing in any asset class stays the same.
It took a while for the right conditions to strike but we finally reached a point where return of your money is more important then the return on your money and the fact that america is still the best house in the worst neighborhood has the world sending their money here for safe keeping lowering rates further and further.
Last edited by mathjak107; 10-21-2012 at 06:28 PM..
Correct ,the 1.5% is the long term average. Just like stocks have a long term average so do cd's.
The fact is right now is no different then when any other asset class is down.
You dont lose principal but you do lose your return at times and now is one of those times.
With the economy teeter tottering on sliding back into recession or worse possible deflation ,consumer spending dropping, unemployment and the trouble in the euro zone the out look isnt good.
While the fed controls short term rates the worlds investors control the longer rates. The investors of the world would love higher rates but the bond markets are in full agreement with the outlook of gloom the fed sees.
The two groups dont always see eye to eye. While the fed was selling bonds and trying to raise long term and short term rates before the down turn the investors wrestled long term rates away from the fed and took them lower despite the feds best efforts.
That resulted in the famous inverted yield curve we had where short term rates were higher then long term.
Its not just the fed that wants rates low, the investors of the world are keeping them at bay as well.
In fact, you DO lose principal, in real terms (not nominal terms), with CDs today. That is what my prior post explained.
In fact, you DO lose principal, in real terms (not nominal terms), with CDs today. That is what my prior post explained.
I agree with you.
The problem that folks complain about in savings account interest is legitimate.
As mentioned repeatedly in this thread and elsewhere, typically the interest rate on a short term CD is about 1 to 1.5% above inflation rates, and long term savings instruments a point or so above that. Looking at a nominal cost of living annual increase of 2%, you'd see short term CDs at 3 or 3.5% today, and they aren't nearly at that interest rate.
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