Regardless of the trend of recent decades toward greater sophistication in retirement savings, the certificate of deposit, or CD, is still king. The obvious advantage of the CD over traditional savings accounts is that they typically yield significantly higher interest; with the primary drawback being the commitment that one incurs to maintain the deposit for a specified period, usually from six months to five years.
This blog article below was written back in 2018 when my bond ladder was working great. It still is. It was true that a CD or bond ladder purchased back then would have been an excellent investment because interest rates have gone down substantially raising the value of existing CDs and Bonds.
As a bond and CD ladder investor you are still benefiting from those previous purchases that are still in your inventory, but now what do you do with new funds from expiring bonds or CDs? That is the big question.
Do you buy a fixed income investment paying almost nothing but you feel is safe, or do you buy stocks which are at a all time high? No easy choices. They call in TINA, there is no other alternative for investors other than stocks. The problem is if stocks are going up because of that and not earnings, then will they collapse at some point in time. Stocks are more risky than bonds as far as return of capital.
Lately bond investors have been buying the perceived less risky type of stocks, like Utilities (XLU) and Real Estate (IYR), because they pay a good dividend and to a lessor degree some commodities (DBC) as a hedge against inflation.
At this point in time there is no easy safe answer of where to put your money. The markets are so distorted fundamental analysis no longer works. -Robert Fowler
The Certificate of Deposit (CD) is Still King (2018)
Retirement Savings – Safety
With interest rates now rising, it may be the time to invest in a certificate of deposit ladder or US Treasury Bills.
In saving money, safety has always had an opportunity cost; that is, lower rates of return than for instruments incurring greater risk. In retirement, we don’t want to loose our savings, that is for sure. So, how can we offer ourselves the greatest opportunity while we are obsessed more with the return OF our money than the return ON it? Continue reading “Fixed Income Investing”
The number of baby boomers hitting retirement is well, booming, to say the least! While the idea of retirement is usually a welcome prospect, many baby boomers are encountering a bit of a struggle juggling retirement with their current lifestyle. The struggle is largely in part to being ill-prepared financially, leaving many boomers flailing just to stay afloat.
The simple fact of the matter is that there are a number of factors working against the aging baby boomer population, making financial stability difficult to obtain. The recent recession in the American economy played a large role, creating instability in the stock markets, financial institutions, and housing markets. This left a wake of financial ruin to many boomers, even those who thought they were secure. Along with the recession is the rise in unemployment. Jobs that were once considered secure became bankrupt, and steady incomes slowed to a trickle.
Another big contributor affecting boomers is financial planning, or lack thereof. While it may seem like a primitive and simple concept, proper financial planning has proven quite elusive for many boomers. Unfortunately, it is key to a financially-sound retirement. While financial planning is most effective when started as early as possible, just remember that it is never too late to start.
Personal Finance – This may seem like an archaic concept, but getting your personal finances in order is one of the first steps in successfully managing your money. Many programs exist (both free and paid) that can simplify this process. Sites such as www.mint.com offer a wealth of free tools that make budgeting, spending, and saving, a quick and easy process. Other programs exist that cater to taxes, HSAs, investments and practically any other financial category.
Financial Advisors – While you may think that you can manage your money effectively, many boomers find themselves stuck in a hole without a shovel. This is where a professional can help. Financial advisors make a living helping folks effectively manage their assets in as lucrative a way as conceivably possible. They are up-to-date on current investment strategies and many have reputations of making clients good money.
Banking – Most people see a bank as a convenient way to handle their money. While that is absolutely true, most banks are offer fantastic financial resources to their members. For instance, a bank might offer financial advice completely free simply for using their services to handle your assets. Aside from that, many banks have investment advisors, mortgage refinance specialists, and other financial professionals on site.
If your retirement fund leaves a lot to desire, then it is important to get in control of it as soon as possible. Whether you utilize a personal finance program, a financial advisor, a banking professional, or all of the above, there are a lot of ways to grasp the reins. Your retirement should be a time of rest and relaxation, not a time of turmoil.
Oh, the irony. Annuities are taking a bad rap these days, at a time when they should be held up as the ultimate retirement solution in many cases. Over the last decade, annuity products have evolved tremendously, offering features previously unheard of; while during the same period, the market has driven seniors away in droves.
Oh, the irony. Annuities are taking a bad rap these days, at a time when they should be held up as the ultimate retirement solution in many cases. Over the last decade, annuity products have evolved tremendously, offering features previously unheard of; while during the same period, the market has driven seniors away in droves. After the blind optimism of the late 1990’s and the inevitable market landslide since, retirement priorities have returned to what they should have always been; long-term perspective and safety. While the vast array of annuity products today offers so much more, the basis of the annuity remains the same; the offer of safety and, as necessary, the guaranty of never outliving one’s assets.
There is no safer vehicle than a fixed annuity. Insurance companies are required to maintain reserves far greater than those of banks and credit unions, and state guaranty funds provide higher protection limits than the FDIC. AIG, for example, has been completely solvent in terms of annuity deposits and claims paying ability, even though the company was in tremendous financial trouble. Even without the government bailout, no AIG annuity holders were ever in any danger, even if the company had completely dissolved. While variable annuities (VA) do not all offer the same safety of principle as fixed annuities, they offer other advantages, including tax treatment roughly equal to qualified retirement plans such as traditional IRAs and 401(k)s; and a death benefit that guarantees that even in the event of market losses, one’s heirs will not suffer those losses. Some VAs, however, do in fact offer principle and/or minimum gain features that make them the optimal choice for persons who wish to remain in the market but need certain assurances.
Finally, this modern era of guaranteed investment products has introduced the equity index annuity (EIA), commonly referred to as the fixed index annuity (FIA); emphasizing that it does not actually invest in equities, but offers credited gains relating to any of several available indices of the investor’s choosing. One has the opportunity to profit from market gains with no risk of financial loss. Over the last decade, the S&P index has just about netted a zero gain; in the last five years, it has fallen very slightly; in each of the last three years, it has lost nearly three percent on average. Three years ago, this article’s author transferred one of his father’s retirement accounts into an indexed annuity that has averaged about 6.2 percent annually, tax deferred, with ZERO RISK! When the lowest an account can yield in a given year is zero, the potential is phenomenal. The buzz phrase in the industry is “zeroes are heroes.”
Detractors of the annuity cite such criticisms as high expenses and commissions. In actuality, annuities have expense charges commensurate with the risks they are insuring against; and the commission structure reflects the fact that an advisor gets paid only once for the management of his client’s account, rather than racking up management and trade fees continually throughout the lifetime of an account. Also, the returns on annuity products are illustrated net of fees; they could not possibly be more transparent, and there is no incentive for the advisor to engage in unnecessary and potentially costly transactions.
So, should annuities be a part of every retirement portfolio? Certainly not every one; but they are certainly appropriate for most people. As with ANY financial product, annuities are not better or worse than other options; they are better for certain individuals in certain situations. Select an independent financial planner or advisor who specializes in comprehensive planning, particularly in retirement and senior planning.
My name is Rob Drury, and I am the executive director of the Association of Christian Financial Advisors, headquartered in San Antonio, TX. The ACFA is the nation’s largest nonprofit financial planning network.