Financial Strategies: CD’s, Stocks and More
Staying away from high-yield investments may prevent you from losing a significant amount of money, but then you may run the risk of not having enough retirement assets to reach your goals. Today, about 30 percent of individual investors’ liquid financial assets are sitting in bank accounts and money market funds.1
For some, “playing it safe” may be an option to put a portion of your assets, but first, you need to identify your individual goals and objectives, tolerance for risk and time horizon. Then you will want to design a financial strategy around those factors. Not all investments hold the same risks. It is important to work with a financial advisor to determine the appropriate risk tolerance for your situation.
Over the past eight years, the interest rate on money market accounts has declined significantly, from 4.5 percent in 2007 to about 0.1 percent today.2 There’s been talk about the Fed raising interest rates, but the recent Brexit vote may put that action on hold even longer. 3
The direction of interest rates impacts most options for cash holdings, including money market accounts, short-duration bonds and certificates of deposit (CDs). While CDs are considered a conservative financial vehicle, you still trade liquidity for yield. The longer the term, the higher the yield, but the rates today may not justify tying up cash for very long. Individuals may wish to consider a CD laddering strategy to take advantage of changing interest rates in the future. A typical CD ladder consists of several different “rungs,” each representing a CD with a different maturity.4
Generally, bonds operate in much the same way, trading higher yields for longer terms. For some investors, today’s intermediate-term bonds may offer the potential for earnings without some of the additional risks that may be associated with longer-term maturity bonds. Please note that bond obligations are subject to the financial strength of the bond issuer and its ability to pay. Before investing, you should consult with your financial advisor to understand the risks involved with purchasing bonds.
One thing that’s true for most people is that it’s better to start planning early. Those who wait until the last minute to start thinking seriously about retirement will have a harder time accumulating the necessary assets to allow them to retire with the lifestyle they desire.
A report from BlackRock issued at the end of 2015 revealed that the average retirement portfolio of Americans age 55 to 65 held only $136,200. Historically, people in their 50s and 60s were more concerned with capital preservation than with capital accumulation,5 but today, that’s not always the case.
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Our firm assists retirees and pre-retirees in the creation of retirement strategies utilizing investment and insurance products. Advisory services offered through B.O.S.S. Retirement Advisors, a Registered Investment Advisory firm.. Insurance products and services offered through B.O.S.S. Retirement Solutions. To see a list of services please visit us at bossretirement.com/services.
This content is provided for informational purposes only. It is provided by third parties and has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.We are not affiliated with any government agency including the Social Security Administration.
1 David A. Levine. The New York Times. July 1, 2016. “The Goldilocks Strategy for Prudent Investors.” http://www.nytimes.com/2016/07/02/your-money/the-goldilocks-strategy-for-long-term-investment.html?_r=1. Accessed July 12, 2016.
2 Bryan Borzykowski. CNBC. Feb. 24, 2016. “The big risk looming in your money market fund.” http://www.cnbc.com/2016/02/24/beware-you-may-lose-cash-in-your-money-market-fund.html. Accessed July 12, 2016.
3 Ann Saphir. Reuters. June 24, 2016. “Brexit vote means Fed stays put.” http://www.reuters.com/article/us-britain-eu-fed-analysis-idUSKCN0ZA0R6. Accessed Aug. 9, 2016.
4 Fidelity. June 1, 2016. “Is it time to look at CDs?” https://www.fidelity.com/viewpoints/investing-ideas/time-for-investing-in-cds. Accessed July 12, 2016.
5 Jeff Reeves. Forbes. July 6, 2016. “Why Boomers Should Show Stocks More Love.” http://www.forbes.com/sites/nextavenue/2016/07/06/why-boomers-should-show-stocks-more-love/#53bc0d683620. Accessed July 12, 2016.
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