From Dennis Miller of Casey Research:
… [T]he Federal Reserve is keeping interest rates artificially low to support banks that made poor business decisions. They are doing so at the expense of the public; seniors and savers are often the hardest-hit.
A few months ago, I wrote that I felt like the federal government had declared war on seniors and savers. Much to my surprise, some folks took issue with that remark… perhaps they should ask all the retired people who have unretired and found a job to help pay the bills how they feel.
We must make up for the difference in yield somewhere; that is the reality retirees face today. There are no cash instruments that will make up that difference with the same safety that was available in 2007.
Investors – particularly those who are retired or getting close to it – have to come to grips with the fact the investing paradigm has changed, and it will likely continue to change. Today, investing cash the same way we did in 2007 will provide only a small fraction of the yield.
The current challenge with the cash portion of your portfolio is to find safe, somewhat liquid investments that provide some sort of yield, hopefully enough to keep you even or ahead of inflation. Sad to say, even a 1% return is 100 times greater than what you’d earn on a current sweeps account. And you have to earn double that just to try to stay even with the government reported inflation….
The reality today is that same $50,000 in your cash account will earn $5 in interest and lose $1,000 in buying power due to inflation during the year.
In the September issue of our premium publication, I interviewed Chuck Butler of EverBank, who knows more about this issue than anyone I know. One hedge against inflation is foreign currencies. If you can find one that’s paying interest, even better.
EverBank has 90-day, FDIC insured CDs that are denominated in foreign currencies. One particular currency that Chuck outlined is currently paying 1.6% while appreciating against the U.S. dollar. Would you rather tie up your money for five years to earn a meager 1.2%, or commit to 90 days and earn 1.6% while adding inflation protection against the declining value of the dollar? I sure know my answer to that question…
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