Interesting articles most recently about the Federal Reserve getting ready to end the zero-bound short-term interest-rate enviroment. Whenever the Fed moves forward, later this year or sometime next year people need to reset their stock expectations now.
Warren Buffett recently said that “if interest rates stay as low as they are for the next 10 years, then stocks will have proved to be very cheap today. If interest rates go higher, then they will have proved to be expesnsive.”
In this low interest rate period of about 9 years everything looked better than good old savings in cash equivalents like CDs and savings accounts and money market accounts.In most cases any stock with a reasonable dividend yield attracted investors cash.The feeling is that low interest rates have caused market distortions with stocks that have higher valuation with high P/E growth stocks than value stocks. Making moves to cash due to dangers with some stocks looks really attractive.
Most Baby Boomers and Seniors are saying “I can’t live off zero percent interest in my savings but I don’t want to take any risk and lose my principal if the stock market takes a bit hit.” Especially as I get closer to my retirement age. I am here to tell you that there are great risks to your investments when the interest rates rise as some stocks can be over priced and will reduce to their long-time P/E ratio. For the Boomers and Seniors I would rather see you take the profits and spend down some of the principal to live your life than to risk losing a lot of principal.
Fixed rate annuities are providing 2.5%-3.25% fixed rates and also a most popular option know as a Fixed Indexed Annuity that provides no downside risk to your account value and allows for growth rates around 4-6+ percent from stock market index performance. These programs are truly safe and grow tax deferred and allow for comfortable levels of liquidity of funds when needed. These also provide an opportunity to enjoy a guaranteed income for life feature just like a Pension. Another special feature is that the proceeds at death pass to the named beneficiaries without going through the Probate courts.