Why are CD rates so low? (safest, buy, refinance, income)

[certsevtxert]

haha I thought you meant audio CDs when I opened this LOL

[mathjak107]

Originally Posted by justNancy

I agree! I posted about this on the retirement forum and was given a lecture about mismanaging my money. I have other investments (i.e., bonds, annuities) and I'm only 61, but the people who are being hurt the most by these low rates are seniors living on fixed incomes. The market is too risky for people who have limited nest eggs and are 70 or 80 years old. Just typing words like "low interest rates hurt seniors" will bring up many articles. For example:

Fed's Low Interest Rates Crack Retirees' Nest Eggs - WSJ.com

bull crap i say:

fixed income investing includes many many many types of bond funds and bonds. for 36 years now even right up to this moment there were many many safe alternatives to cash that did just great..

if any of you out there were the typical financially ignorant person that this country has and you did nothing then you got nothing.

those that invested in other fixed income choices had spectacular capital gains through the years so i don't buy that bull-sh*t for one second that is publicized by the media . the media is as financially ignorant as the people who read that crap and believe it.

the proof is in the pudding as they say. you could have done nothing more then bought safe us treasuries and had incredible returns. over the last decade you would have been up over 100%.

it is not like you didn't know to do this, the fed did everything to announce it short of dropping leaflets from helicopters.

our retirement portfolio is a a widely followed portfolio of fixed income investments that just ended 2012 with an 11% gain at 76% less risk then the s&p 500.
we are at only 3% equities and that was only because one of the income funds holds a few distressed companies stock along with their bonds ,otherwise it would have been zero stock..

for 2009 we were up 20%
2010 9.1%
2011 6.3%.

in fact since 1994 we only had two down years, 2008 and 1994.

there was nothing outstanding about this portfolio either ,it used plain old fidelity funds . there are quite a few popular retirement forums like early retirement and financial independence and there are loads and loads of retirees and pre-retirees with assets in all amounts doing just fine because they pay attention and know better then to try to retire on just cash investments.

most of you will need a ton of cash and be quite wealthy to be able to pull off an all cash retirement and be able to inflation adjust and have your needs and wants.

cash is a commodity like any other commodity and it has it's safe good times and it's bad risky times. if cash was your only investment then you made it at the wrong time and payed the price of ignorance.

no where is it written anywhere in the world that if you plan poorly and pick the wrong asset class at the wrong time you still get rewarded. you might not think so in your ignorance but cash is an asset class and carrys risk.

historically it has lost money after taxes and inflation more times then it was ahead.


a fixed income model with no stock could even have been used using ETF'S .

the following made a wonderful fixed income model for money you werent spending currently. it is not what i use but it covers all types of fixed income markets.


AGG- TOTAL BOND INDEX
FRHHX- HIGH YIELD FLOATING RATE FUND
MBB- MORTGAGE BACKED SECURITIES
LQD- INVESTMENT GRADE CORPORATE BOND
WIP- INTERNATIONAL INFLATION-PROOF BOND FUND
PCY- EMERGING MARKET BOND FUND
TIP- US INFLATION -PROOF BOND FUND
HYG- HIGH YIELD BOND FUND


you could even have built a bullet-proof plan that returned over 9% a year for almost 40 years with only 2 or 3 down years in all that time.

25% gold
25% cash yes cash
25% long term treasuries
25% total market fund.

those are 3 very volatile assets yet when combined together they are as boring as watching paint dry as they move opposite to each other..

there is no economic scenerio to date that would have devasted you , in fact you would have profited in mostly every case.


you could have simply bought a very consrvative fund like wellington and did just great as well with a bit more risk.

so please don't believe the hype and bull-shi*t the media puts out. thats geared for the financially ignorant so they don't feel bad.

afterall the media says it isn't their fault their savings isn't growing or their retirement is failing and that is what they want to hear.

[mathjak107]

Originally Posted by certsevtxert

haha I thought you meant audio CDs when I opened this LOL

i was thinking cross dressers ha ha ha ha

[mathjak107]

Originally Posted by justNancy

I agree! I posted about this on the retirement forum and was given a lecture about mismanaging my money. I have other investments (i.e., bonds, annuities) and I'm only 61, but the people who are being hurt the most by these low rates are seniors living on fixed incomes. The market is too risky for people who have limited nest eggs and are 70 or 80 years old. Just typing words like "low interest rates hurt seniors" will bring up many articles. For example:

Fed's Low Interest Rates Crack Retirees' Nest Eggs - WSJ.com

the other point is no matter how much you have and no matter what your age is you always have money that you will not be spending for many many years.

even at 65 you have money god willing that will not be used to eat for 20-30 years.

anyone who takes this and tucks it away in cash is again financially ignorant.

for those that live hand to mouth and have no savings at all they have no worry either about bank rates being low as everything is being spent as it comes in.

if the difference of 1 or 1-1/2% in real return makes the difference between you struggling or not then there is something very wrong with your plan because for over 100 years the average real return of cd's after inflation is only 1 to 1-1/2%...


bill bernstein has turned extremely conservative lately. in his e-book the ages of the investor bill recommends you use a combination of short term bonds, TIPS , and eventually immeadiate annuities for a low risk retirement income stream but certainly cash instruments are not recommended as the investment of choice for surviving retirement.

even using that bill says only about 3% withdrawals are really bullet-proof and stepping it up to 4% may likely work but it can fail too. a max of 3% is the price you pay for such low risk and high success rate..

the more traditional inflation adjusted 4% counts on at least 50% equities to achieve a very high rate of success but it also has a very large fudge
factor for things to go wrong without effecting the income stream.. bills ultra conservative model does not have much slack for the awe craps of life unless money not used for sustaining your retirement is diverted to more riskier investments.

higher rates go hand in hand generally with higher inflation so the spread is about the same. it is only now that the spread is below what it should be but it is still not enough to really effect a decent structured plan that does not try to bet the ranch on cash..


as i showed above those that took an interest and payed attention were fine. at one point our model used as much as 27% cash.

the cash was not an investment but it served to temper the portfolio's volatility and to provide money for other asset classes as the big picture changed. eventually that cash found its way into other forms of fixed income .


everyone looks to blame the dealer for that loss rather then look for a way to play the cards they are dealt and turn it in to a win..

there are so many ways those on fixed incomes could go even up to the minute to insure they maintain the income stream they need without interruptions from markets and rates.

researchers like dr wade pfau, michael kitces ,bill bernstein and moishe milevsky have done extensive research on what gives high success and what does not.

utilizing spia products (single premium immeadiate annuties) mixed in with your own nest egg can work great through times like these.

if anyone has any interest there is some interesting research done by dr pfau using no bonds and spia products and equities to meet goals reliably .

http://wpfau.blogspot.com/2012/09/an...archer+Blog%29

[justNancy]

Originally Posted by mathjak107

bull crap i say

I guess the experts are full of "crap" too. I already posted a link from The Wall Street Journal. Here are just a few more. From Jim Cramer's "The Street," "US News" and "Bloomberg" to many others, they all agree with me.

[url=http://www.thestreet.com/story/11451656/1/low-interest-rates-are-the-curse-of-retirees.html]Low Interest Rates Are the Curse of Retirees - TheStreet[/url]

[url=http://money.msn.com/now/post.aspx?post=d6759455-97ff-4142-a066-e1793628a387]How low interest rates hurt seniors- MSN Money[/url]

[url=http://money.usnews.com/money/blogs/the-best-life/2012/03/19/3-ways-low-interest-rates-hurt-seniors]3 Ways Low Interest Rates Hurt Seniors - The Best Life (usnews.com)[/url]

[url=http://www.bloomberg.com/news/2012-10-30/who-loses-when-fed-keeps-interest-rates-low-.html]Who Loses When Fed Keeps Interest Rates Low? - Bloomberg[/url]

[mathjak107]

Yep, the truth is there are no real experts there is only your own actions you have to live with.

It is no different then day after day the headlines on cnbc's website about the next shoe to drop or how bad the news is.

The fact is the numbers speak for themselves. Just pick out any conservative income or bond fund . How do the returns look to you?


Look at all the times historically cash has had negative real returns.

This is nothing new. But the media makes it out like this is some new event.

Folks who were not finanicialy ignorant had choices.

You may not have acted and been part of it but that is your own doing.

If merely switching excess cash to bonds did not produce the large gains it did you could prove me wrong but the fact is you cannot say i am wrong.

Wrong is what the media does or the supposed experts who single out the wrong asset class at the wrong time and go whoa is you.

Interest rates are not punishing savers, a poor economy is.

If there is no food you have to move to where the food is.

[justNancy]

Originally Posted by mathjak107

You may not have acted and been part of it but that is your own doing.

Again, you are making this personal. I never said I put everything into bank CDs. In fact, I specifically wrote that I have other investments.

However, some of us are able to look through the eyes of others without screaming "Me, me, me!" Facts are facts. When you can't face the facts, then apparently you need to attack and blame. I hear the same arguments when it comes to health insurance. It must be your fault if you are sick and you don't have adequate coverage. If you read the articles I posted instead of having a knee jerk reaction to them, you'd see that many of them point out that only a portion of income comes from interest from bank CDs. Still, even in those cases, studies like the one released in November by the Manhattan Institute conclude that, even with the positive impact the low rates have on portfolios, "the effect of low interest rates falls disproportionately on those who save and who live off of savings,"

Bottom line: "Frugality is punished."

[URL="http://dailymail.com/Business/GeorgeHohmann/201211250131"]SOURCE[/URL]

[mathjak107]

It is nothing personal believe me. When i say you i do not mean you. I mean you as in all the financially ignorant out there.

Think about what your saying.

Those that have no real savings and are spending their income to live,that money is not even there a few months. There is little to get interest on in any case.

If they had excess cash they were not spending for a while then they could have moved it.

The difference in real return after inflation between now and when rates were say 6% is less than an average of 1-1/2% in real return.
That is your interest less inflation.

Anyone who' s life is going to be any different by a difference of 1.5% has bigger trouble then interest rates.

The numbers don't add up to a hill of beans for most folks on fixed income as most of america lives hand to mouth getting no interest on little savings anyway.

The balance of folks out there who do have long term money if they did the right thing and moved it then they should have seen more then enough gains to offset a few points of interest.

Lets assume the folks you speak of with little have 100k saved at most.

They can pull at best 3k a year from it without heavy investing.

Lets say they keep 3 years withdrawals in cash.if they pull more then that they will run out of money way before they run out of life.

That is 9k. Even if rates returned a real return of 1.5% the interest they are not getting is nil.

The gains they would have had just being in bonds or bond funds on the unused money easily blew away the lost interest.

Do you now follow why i am saying what i am?

[Sol Rosenberg]

The reason I started this thread is because I recently received a huge inheritance and would like it in a safe place. I am a doomer and think the markets are going to crash. I would be happy with 1.5% CD's because that would make me about 35,000 per year. I would be fine with that because it also represents no risk.

[justNancy]

Originally Posted by mathjak107

Those that have no real savings and are spending their income it to live,that money is not even there a few months.

Yes, that is true. However, it's better than starving or living in the street. It's not always a choice.

Originally Posted by mathjak107

If they had excess cash they were not spending for a while then they could have moved it.

You mean like buying real estate in 2005 or 2006? You used the words "financially ignorant." I completely agree there are people who foolishly blow money that could have been invested wisely, but most people are waiting every week for a paycheck. If they're lucky, then they are able to put away a small nest egg in an IRA.

Originally Posted by mathjak107

The numbers don't add up to a hill of beans for most folks on fixed income as most of america lives hand to mouth getting no interest.

I agree that many retirees are living hand to mouth and waiting for their Soc Sec checks. But why do you think it's their fault? Could it be that they worked all their lives and made enough to pay their bills and feed their families? Maybe they wanted to send their children to college? I know a couple whose adult son was diagnosed with cancer and they're helping his family with their retirement savings. What about being the victim of a disaster?

Originally Posted by mathjak107

Do you now follow why i am saying what i am?

Yes, but you are crunching numbers and forgetting that there are people with real life situations behind them.