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I'm not a sophisticated investor. Like most seniors I've got my savings tied up in CD's because I, again like most seniors, won't go anywhere near stocks, bonds, securities, derivatives, and any other "sexy" instruments that could wipe me out tomorrow.
The idea that everything but CDs somehow involves high risks and that you can somehow be "wiped out tomorrow" by other investments isn't reality based.
Regardless, banks don't owe you anything for your money. If demand for money (in the form of loans) is low then interest rates are going to be low.
Basically you are angry that the fed is keeping rates low which benefits the economy, because this reduces your ability to extract wealth from the economy via higher interest rates more difficult. You don't care about the economy, you don't care about the situation the youth faces in this country, etc....what you care about is getting high rates of interest for doing absolutely nothing.
Anyhow, time to adjust your expectations. The oldsters destroyed the economy but still want it to behave as if everything is okay. Its not and even if the country gets serious about fixing its problems it will take years to fix...
So now the question is will treasuries ever go back to 6% when it would increase interest paymenst on the national debt by hundreds of billions of dollars. I think we are in this boat with next-to-nothing interest rates for the rest of the century, as the national debt will never be under control in the foreseeable future.
First of all, your thinking is backward. You seem to think that the Treasury can set the rate low so that they don't have to pay much interest on the national debt. In fact, because of the debt, they have to go out to the open market and ask people to lend them money at whatever interest rate the people are willing to accept. In effect, the people themselves determine the rate. When there aren't other safe, viable alternatives in the world marketplace, people are willing to accept a lower rate of return for the perceived safety of investing in the U.S. government.
Secondly (and disregarding the above), if you truly believe that rates will not go up for the rest of the century, then just lock up your money in long-term Treasuries. Instead of getting 0.02% in a bank, you can get 3.3% in a 30-year Treasury bond or 2% in a 10-year T-bill. Not that I would recommend either of those actions.
Why not put some of your money in corporate bonds issued by blue-chip companies? You can get a AAA-rated, non-callable bond issued by Johnson & Johnson with a YTM rate of 3.94% until 2033. Or a AA+-rated, non-callable GE bond with a YTM rate of 5.38% until 2038. (Rates current as of 9/2/11.)
I, myself, prefer investing in dividend-paying stocks for income, but the bonds above are just a couple of examples of things you can do to increase your income without adding too much risk to your portfolio. As for dividend-paying stocks for example, I am getting over a 10% dividend from my initial investment in KMP (although based on its current price it is currently yielding 6.63%). Verizon is another good dividend payer with a current yield of 5.62%. I'm also getting a 15.3% return from CMO, which is a REIT, but that is not something that I'd recommend for you.
Didn't think defending the basic concept of supply and demand would be very debatable. Sooner or later it always asserts itself.
Much later, from the looks of things. Most economists that I happen to hear talking say we're in a "brave new" economic reality now in which the old rules don't apply anymore. That's what I hear. You may be hearing from some who say differently. But, in my estimation, America will be on the ropes for the foreseeable future.
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Originally Posted by user_id
The idea that everything but CDs somehow involves high risks and that you can somehow be "wiped out tomorrow" by other investments isn't reality based.
If it isn't insured by the FICA, then an investor is at risk. The rule has always been don't invest any money in a non-FICA instrument you cannot afford to lose.
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Regardless, banks don't owe you anything for your money. If demand for money (in the form of loans) is low then interest rates are going to be low.
You're right. They don't. If the economy stays sour long enough they can benefit by not paying interest for years. I'm more fortunate than most seniors in that I have enough savings to see me through till I kick the bucket, and some real estate besides.
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Basically you are angry that the fed is keeping rates low which benefits the economy, because this reduces your ability to extract wealth from the economy via higher interest rates more difficult. You don't care about the economy, you don't care about the situation the youth faces in this country, etc....what you care about is getting high rates of interest for doing absolutely nothing.
Well, yeah, I guess you could say I am. I'd like to leave a nest egg for my wife who will outlive me. Looks like now I can only leave her the real estate, but that's still worth a considerable chunk even in this downturn.
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Anyhow, time to adjust your expectations. The oldsters destroyed the economy but still want it to behave as if everything is okay. Its not and even if the country gets serious about fixing its problems it will take years to fix...
Sounds like you're angry at "oldsters" and don't care about the situation they're facing. Remember, you "kids" have an entire life to build your fortune. We're at the end of the road and can't work anymore. Maybe you'd like to see us eating cat food as some sort of retribution for the fix we got you youngsters in. Well, your wish is coming true for millions of seniors because that's what they're living on.
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Originally Posted by MadManofBethesda
First of all, your thinking is backward. You seem to think that the Treasury can set the rate low so that they don't have to pay much interest on the national debt. In fact, because of the debt, they have to go out to the open market and ask people to lend them money at whatever interest rate the people are willing to accept. In effect, the people themselves determine the rate. When there aren't other safe, viable alternatives in the world marketplace, people are willing to accept a lower rate of return for the perceived safety of investing in the U.S. government.
Secondly (and disregarding the above), if you truly believe that rates will not go up for the rest of the century, then just lock up your money in long-term Treasuries. Instead of getting 0.02% in a bank, you can get 3.3% in a 30-year Treasury bond or 2% in a 10-year T-bill. Not that I would recommend either of those actions.
Why not put some of your money in corporate bonds issued by blue-chip companies? You can get a AAA-rated, non-callable bond issued by Johnson & Johnson with a YTM rate of 3.94% until 2033. Or a AA+-rated, non-callable GE bond with a YTM rate of 5.38% until 2038. (Rates current as of 9/2/11.)
I, myself, prefer investing in dividend-paying stocks for income, but the bonds above are just a couple of examples of things you can do to increase your income without adding too much risk to your portfolio. As for dividend-paying stocks for example, I am getting over a 10% dividend from my initial investment in KMP (although based on its current price it is currently yielding 6.63%). Verizon is another good dividend payer with a current yield of 5.62%. I'm also getting a 15.3% return from CMO, which is a REIT, but that is not something that I'd recommend for you.
You sound like a pretty sophisticated investor, Mad. Most of us don't want to take the gamble with anything outside of FICA-insured instruments because at least we know that we'll get our money back if the bank folds. But we pay for that safety, of course, in the form of next-to-nothing interest rates. As I said above, I'd like to get the 5%. Who wouldn't? But if it's not there, it's not there. Nothing we can do about it. At least I have enough to live on without the interest. But say hypothetically I have a million in savings in the bank now. In twenty years (my remaining actuarial lifespan) that million is gone, where if they banks had been paying 5% on it I could have lived on the interest and my bank would still have that million when I croaked. Now they will have zero.
I happen to hear talking say we're in a "brave new" economic reality now in which the old rules don't apply anymore.
They aren't referring to supply/demand here...
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Originally Posted by thrillobyte
If it isn't insured by the FICA, then an investor is at risk. The rule has always been don't invest any money in a non-FICA instrument you cannot afford to lose.
The FICA isn't god, its a government run organization. In what sense is money in a bank insured by the government safer than bonds issued by the same government?
Making a hard distinguish between a FICA insured account and other investments makes no sense at all, there is a huge spectrum of risk and nothing is truly risk free. Furthermore, you are entirely ignoring inflation risks. So great, you won't lose your principle in a FICA insured account...yet it could lose double its real value over 10 years...
Now if you only feel comfortable putting money into FICA accounts, fine, but pretending as if these are without risk while everything else has a high risk of vanishing over night has no basis in reality.
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Originally Posted by thrillobyte
You're right. They don't. If the economy stays sour long enough they can benefit by not paying interest for years.
There is no real benefit here, banks make money off the spread between their borrowing costs (what they pay depositors, etc) and what they loan money for (adjusted for defaults). When interest rates are low the spreads are no different than when interest rates are high, that is, borrowing at 1% and lending for 5% is no different than borrowing at 3% and lending at 7%. Yet from your perspective the banks are some how making a killing in the former case....
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Originally Posted by thrillobyte
Sounds like you're angry at "oldsters" and don't care about the situation they're facing. Remember, you "kids" have an entire life to build your fortune. We're at the end of the road and can't work anymore.
No I don't care about their situation because they created it. What I do care about is preventing them from stealing from younger generations to fund their retirements. Oldsters need to deal with what they created..
The idea that youngsters should not care because they have a lifetime to save for retirement entirely ignores reality. If oldsters steal wealth from younger generations (in the form of higher taxes, higher interest rates when the economy is weak, etc) then this will limit the amounts they can save retirement. You can't get something for nothing. Either younger generations have to be collectively poorer or oldsters will have to reduce their standards in retirement...
Oldsters still don't seem to understand that money is just paper and an asset is only worth what someone is willing (and able to afford) to pay for it. You can't glut the economy and put huge burdens on younger generations and expect to have a fully funded and plush retirement. The fact that you guys are still expressing the same tiresome rhetoric doesn't bode well for your future...
Sounds like you're angry at "oldsters" and don't care about the situation they're facing. Remember, you "kids" have an entire life to build your fortune. We're at the end of the road and can't work anymore. Maybe you'd like to see us eating cat food as some sort of retribution for the fix we got you youngsters in. Well, your wish is coming true for millions of seniors because that's what they're living on.
I admit I am one of the younger generation who is angry with the oldsters. We are going to work the next 20 years to support Social Security and Medicare and will pay into these systems without seeing the benefit of them....and that's if our economy doesn't completely collapse under the weight of our national debt in the meantime (as is already happening in countries like Greece and will undoubtedly happen in more places). Meanwhile we have a population, 1/3 of whom are obese and who think they should be entitled to unlimited medical care despite horrible lifestyle habits.
Yet we hear Boomers say "I paid into the system and I'm going to get what's mine". Reality check: Most people's (and their employers') contributions to these systems equals about 7 years worth of benefits, but most are retired far longer than that.
....And then they turn around and call the younger generation "selfish". They're not real good at looking in the mirror.
The last few years have proved that when the economy is depressed and there is a lack of demand for money (for investments, etc) then banks can pay hardly anything in interest.
The FICA isn't god, its a government run organization. In what sense is money in a bank insured by the government safer than bonds issued by the same government?
Making a hard distinguish between a FICA insured account and other investments makes no sense at all, there is a huge spectrum of risk and nothing is truly risk free. Furthermore, you are entirely ignoring inflation risks. So great, you won't lose your principle in a FICA insured account...yet it could lose double its real value over 10 years...
Now if you only feel comfortable putting money into FICA accounts, fine, but pretending as if these are without risk while everything else has a high risk of vanishing over night has no basis in reality.
There is no real benefit here, banks make money off the spread between their borrowing costs (what they pay depositors, etc) and what they loan money for (adjusted for defaults). When interest rates are low the spreads are no different than when interest rates are high, that is, borrowing at 1% and lending for 5% is no different than borrowing at 3% and lending at 7%. Yet from your perspective the banks are some how making a killing in the former case....
You also sound like a pretty sophisticated investor, ID. But to the average Joe like myself we only know one thing: five years ago I was getting $25,000 in interest on my CD's and living on it while saving the principle. Whether inflation was 10% or 1% in 2006 made no difference to me, neither does the spread between paying out 5% and lending at 8% then, or paying 0.03% and lending at 4% now. All I know is that now my principle is dropping like a rock, where in 2006 it stayed intact. The inflation figures are jimmied these days anyway, like the unemployment rate. "Real" inflation, like the "real" unemployment rate, is something like double whatever the doctored government figure is giving you. Food and gas are double what we were paying 5 years ago so I don't buy that horsesh#t that it's only 1%. Like they think we're idiots enough to buy the line that they don't include food, gas and other necessities in the inflation rate because they "fluctuate" too quickly. Give me a break!
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No I don't care about their situation because they created it. What I do care about is preventing them from stealing from younger generations to fund their retirements. Oldsters need to deal with what they created..
The idea that youngsters should not care because they have a lifetime to save for retirement entirely ignores reality. If oldsters steal wealth from younger generations (in the form of higher taxes, higher interest rates when the economy is weak, etc) then this will limit the amounts they can save retirement. You can't get something for nothing. Either younger generations have to be collectively poorer or oldsters will have to reduce their standards in retirement...
Well, you should care because you're going to be in my shoes a lot sooner than you think. Time seems to speed up the older you get and you're going to be my age before you know what hit you. The only difference is that in my time I could buy a piece of property for $30,000, sell it for $700,000 35 years later, and have some serious cash to bank. You kids will never have that opportunity to make such a large amount of money for just sitting on a piece of real estate. But the vast majority of senior didn't have that opportunity either and are living hand-to-mouth without any means other than SS to put food on the table. And now you kids want to take that away from them as well. At least if you're smart you can go out and get a profession that will earn you 100K and provide a good retirement. Most of us oldsters don't have that opportunity anymore so have a little compassion.
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Originally Posted by mysticaltyger
I admit I am one of the younger generation who is angry with the oldsters. We are going to work the next 20 years to support Social Security and Medicare and will pay into these systems without seeing the benefit of them....and that's if our economy doesn't completely collapse under the weight of our national debt in the meantime (as is already happening in countries like Greece and will undoubtedly happen in more places). Meanwhile we have a population, 1/3 of whom are obese and who think they should be entitled to unlimited medical care despite horrible lifestyle habits.
Yet we hear Boomers say "I paid into the system and I'm going to get what's mine". Reality check: Most people's (and their employers') contributions to these systems equals about 7 years worth of benefits, but most are retired far longer than that.
....And then they turn around and call the younger generation "selfish". They're not real good at looking in the mirror.
Here's the reality, Mystical: the seniors didn't set up the system. They were tied to it by government decree. Whether it's working for them and against youngsters like yourself is something the government should be addressing, not them. If they paid into it, they're entitled to it because they counted on it all their lives to be there when they got too old to work, again because government promised them it would be there. Now the Repubs want to take it all away from the too-old-to-be-useful seniors and give it to Wall Street to gamble with. SS and Medicare would be healthy until the next century if the government just kept their grubby hands off the trust fund. But they won't, so it's up to you youngsters to get off your duffs and march to DC to demand change. Make your voices heard. We'd join you but we're too old for that stuff now. You're not. You're young and healthy and can take the grind. If you did force government to listen to you, then SS and Medicare would be there when you're my age. The ways to fix SS and Medicare are well-known; they are simple. It just requires taking some money away from the rich---something Repubs adamantly refuse to do in order to protect their uber-wealthy buddies and corporate benefactors (read: pimps).
But to the average Joe like myself we only know one thing: five years ago I was getting $25,000 in interest on my CD's and living on it while saving the principle. Whether inflation was 10% or 1% in 2006 made no difference to me, neither does the spread between paying out 5% and lending at 8% then, or paying 0.03% and lending at 4% now. All I know is that now my principle is dropping like a rock, where in 2006 it stayed intact.
I would agree that this is pretty much what the "average Joe" knows, but here the "average Joe" is being fooled. Suppose Joe has $500,000 in the bank and needs $25,000 to live on, so take these two cases:
1.) Interest rates are 5% and inflation is running at 7%
2.) Interest rates are 3% and inflation is running at 3%.
Now, "average Joe" is going to feel wealthier in case #1 because he can generated his needed $25,000 from interest alone and his nominal principle won't decline. But the two situations are in fact identical....and this isn't just some academic consideration...its reality. In both cases the value of the principle, namely what it can buy, is declining at the same rate.
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Originally Posted by thrillobyte
Well, you should care because you're going to be in my shoes a lot sooner than you think.
Sorry, I don't follow, why should I care about their self-created problem because I'm going to one day reach retirement age?
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Originally Posted by thrillobyte
But the vast majority of senior didn't have that opportunity either and are living hand-to-mouth without any means other than SS to put food on the table. And now you kids want to take that away from them as well.
Sorry, but why should younger generations be burdened financially because older generations failed to save appropriately for retirement? Its not just that either, older generations stole from younger generations and now they want younger generations to fork over more money?
Younger generations can't afford to support the social security, medicare, etc of the current generation going into retirement.
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Originally Posted by thrillobyte
If they paid into it, they're entitled to it because they counted on it all their lives to be there when they got too old to work, again because government promised them it would be there.
There was no such promise, every social security statement came with a warning that the stated benefits aren't guaranteed. They aren't entitled to anything and the more then insist on receiving every dime they believed they were "promised" instead of making compromises....they worse they will be in the end.
You just can't glut the economy, not save, etc and expect younger generations to bail you out.
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