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One of the reasons you may have a different perspective is that you are much younger than most of the posters here. Most posters here are already in or at the point of retirement. That paper wealth when liquidated becomes real wealth. When you are young and working and invest aren't you exchanging that real wealth for paper wealth in the form of your investment? Don't you want to preserve that investment? As it increases from ROI aren't you the same as the rest of us?
You raise a good point and I think as far as it goes its fine.
Forgive me, though if I see your reasoning as a bit shortsighted. Let me explain. Its true higher interest rates would benefit people seeking low risk investments in bonds, etc. Can you imagine what it might do to others who are not elderly? The small businessman will have more difficulty borrowing. The couple seeking to purchase their first home may be unable to do so, or may struggle harder with the payments. Higher interest rates often correlate with a downturn in the stock market.
Here's a fact which I think alot of us tend to neglect. Our group does not exist in isolation from the rest of the country or the rest of the world. Perhaps, the greatest security for a retirement is a healthy economy. If the economy isn't healthy overall, there will be less paid for social security and into private retirement plans. Lower employment = lower social security taxes and lower contributions to private retirement plans.
The country is in a deep recession, but the interest rate policy pursued by our federal reserve is slowly helping to lift us out of it. Any increase in interest rates could jeopardize that recovery.
In the long run, that's bad for seniors as well as everyone else.
Not True, I recall the carter days when I had 14% CDs and if you were the fiduciary for a disabled veteran you are required to only use Federally Insured Accounts.
But you also has double digit inflation along with double digit unemp-loyemnt. The econmic policy is never run just for one interest.Fuel alone had the biggest incrases seenwhen it triped very quickly on just 15% of boycotted oil.Then look at the interest rates anyoe borrowing had to pay for a car or home.It was a disaster for the econmy.
You raise a good point and I think as far as it goes its fine.
Forgive me, though if I see your reasoning as a bit shortsighted. Let me explain. Its true higher interest rates would benefit people seeking low risk investments in bonds, etc. Can you imagine what it might do to others who are not elderly? The small businessman will have more difficulty borrowing. The couple seeking to purchase their first home may be unable to do so, or may struggle harder with the payments. Higher interest rates often correlate with a downturn in the stock market.
Here's a fact which I think alot of us tend to neglect. Our group does not exist in isolation from the rest of the country or the rest of the world. Perhaps, the greatest security for a retirement is a healthy economy. If the economy isn't healthy overall, there will be less paid for social security and into private retirement plans. Lower employment = lower social security taxes and lower contributions to private retirement plans.
The country is in a deep recession, but the interest rate policy pursued by our federal reserve is slowly helping to lift us out of it. Any increase in interest rates could jeopardize that recovery.
In the long run, that's bad for seniors as well as everyone else.
All you say has validity but many retired folks or near retired folks are living in the here and now. Their real rate of inflation may be different from the governments.
Robyn - all excellent points. The Journal's "meflation" piece is spot on and one I had already enjoyed. Obviously my actions only relate to and have credence for my personal situation. It would be madness for a retiree relying on primarily investment income for BLE (Basic Living Expenses) to go high risk, as you cogently noted.
My fixed income bailout is consistent with my habit of seriously trying to take my profits well in advance of observable trend changes or turns. I long ago gave up trying to think I knew what was going on except for the very broadest factors. I certainly haven't a clue whether we're looking at deflation, inflation or static squat for awhile. (If you put me on the rack I'd probably whimper that some deflation is in the offing near term, but that opinion would only be put forth under duress).
BUT - with QE on the table my non-bankable opinion does tell me that things look more than a bit dicey going forward for the powers that be. That combined with the enormous new debt levels makes me very sensitive to what inflation and surprise interest rate increases would mean, especially for bonds. Hence I've been moving to very short term (if I so choose), high risk equities (by that I mean mutual fund investments that allow me to bail in 90 days or so without a trading penalty) and cash.
I too have been investing for many moons and my learned experience leads me to avoid conventional wisdom, ignore the talking heads and absolutely not think I'm fully aware of, or really comprehend, what is going on or about to happen. I simply take discrete risks in an array of different high potential areas and cut my losses very quickly. It doesn't take too many home runs to cancel out numerous foul balls. So far its been working well for me. My recently closed out bond funds were simply a part of that strategy.
I've counseled my daughters (28 &31) to simply buy and forget it. Their situation and mine (age 60) are light years apart. As I've noted previously, retirees must craft a strategy for their specific circumstances. I wouldn't offer anyone advice on their best strategy. It is beyond my "keen".
Its a fair observation that I've moved away from investing/buy & hold and am more of a gambler for the most part. Its more fun than a casino and my "investment" funds could go to zero and it wouldn't impact my ability to cover BLE. In that regard, my approach may be more understandable. C'est la vie.
I do think TuborgP is dead on correct in highlighting the significance of a QE policy. I wouldn't predict what it means (other than with my money) but it got my attention. We live in very interesting times.
Why mutual funds and not ETFs?
Where do you get money from other than investments? Robyn
You know I just plain disagree with the criticism expressed here of low interest rates.
Low interest rates have lead to some real deals in the housing market for those who can afford it. We bought our second home about one year ago, because I found that opportunity to be a better use for our money than keeping it in the bank.
I'm just a minor example though. Low interest rates encourage people to borrow and establish a business. More businesses lead to more employment. Low interest rates allow young couples to afford a home. Low interest rates allow America to finance the huge debt it has. I'm sorry we have it. But, without deficit spending (and the debt we've incurred) this recession might see 20% unemployment instead of 10% unemployment. I can borrow money for my business when I need it at a 3% rate (secured loan)
High interest rates simply result in people making money off of money rather than making money off their labor, or off the production of good and services. Labor and production increase real wealth. I've never really believed that simply making money off money increases real wealth at all. Its simply wealth that appears on paper.
I see another positive to low interest rates as well. I think they may subtly discourage younger people--like myself--from seeking early retirement. It may keep us in the labor force for more years and creating less of a drain on private and public retirement systems. If we can't count on our saved money increasing at more than 3% a year than our alternative is to keep working.
Finally, low interest rates encourage investment in the stock market rather than in safe areas like bonds. This is positive because when we take risks investing they sometimes pay off with new inventions and new technologies. It makes for a better world when we do this instead of simply owning bonds in a municipal power company.
So, I'm the minority here. But, I'm glad the FED is pursuing a policy that keeps interest rates low.
You do understand that QE means the fed is printing money (out of nothing) and then buying interest rate sensitive instruments to keep interest rates down - yes? The fed will soon surpass China as the largest holder of US debt. This is a lot different than a loan entered into by a willing borrower and a willing lender. And pretty unhealthy IMO. Will leave your generation with a truly horrendous amount of debt to repay (or attempt to inflate away). I am not too worried as of today - because there's a good chance I'll be dead by the time the sh** hits the fan. Robyn
P.S. If we're going to do all that "green stuff" - don't you thnk the power companies have to borrow money to do it? Our local power company bonds are paying about 4.5% tax free. I am not sure stock total returns will be able to compete with that over the next 10 years as tax rates go up. Robyn
I can't see that taking long term federally insured CD's is even remotely suicidal. Pulling the CD before maturity simply forfeits the interest, not the principal. When the interest you are forfeiting is a lousy 2%, and you are trading up to a CD with 6% or 8% interest, you'll make back what you lost in interest very very quickly.
but i bet you have to go out 30 years to get 4.5% tax free today if they have a healthy credit rating..
Only 29 . But I'll probably be dead in 15-20-25-30 years - take your pick. I've been laddering bond porfolios for 30+ years now - and will always have money rolling over. Next year - year after that - 5-10-20 years from now - even after I'm dead . I'll let my heirs worry about higher interest rates and possible lower asset values. I'm just trying to do an ok job with my income.
And - FWIW - I also manage the money of my 92 year old father. And if I find a decent long term bond for him - I'll buy it. I am sure he has many bonds that will outlive him .
So what do you have against long term bonds (hint - only acceptable answer IMO is you think interest rates will be higher in the next couple of years)? Robyn
I think the gist of this message was not that are any CDs with interest rates like this these days - or anything close. But that if we saw interest rates like that in the future - cashing in low interest rate CDs prematurely with a penalty to buy the higher interest rate CDs wouldn't be a big deal. Robyn
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. But I'll probably be dead in 15-20-25-30 years - take your pick. I've been laddering bond porfolios for 30+ years now - and will always have money rolling over. Next year - year after that - 5-10-20 years from now - even after I'm dead 
. I'll let my heirs worry about higher interest rates and possible lower asset values. I'm just trying to do an ok job with my income.
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