Got the “Low Interest Rate” Blues?

By Jon Flynn

The U.S Treasury’s 1-year T-Bill rate currently sits at a yield of just about .38%. That’s not a typo.  No, I didn’t mean to write 3.8%.  Although I wish I did make that mistake, it’s true - the rate is really just .38%!  And chances are, your local bank probably isn’t paying much better on savings accounts, Certificate of Deposits (CD) and Money Market accounts. 

You can look far and wide for a place to park some money while trying to earn a decent rate, and still your efforts will most likely go unrewarded.  For those of us, especially retirees who often count on the interest we receive from our savings, it’s enough to give a person the blues.

The question I’m getting a lot lately in this historically low interest rate environment is, “Is there anything else out there where I can make more than I’m getting now?

 Let’s take a look at some alternatives…..

Bonds – Various corporate bonds can most certainly be found paying rates that are much higher than what you’re receiving now.  However, keep in mind that there is an inverse relationship between the price of bonds and the direction of interest rates.  Considering the fact that interest rates are near zero, and in the long run rates will probably go up, it’s important to make sure that you choose the proper maturity for your liquidity needs.  You don’t want to have to cash in a bond prematurely while it might be down in price and have to take a loss.

High Yielding Stocks – There are companies that are paying pretty hefty dividends on their common stocks right now.  In some cases these dividend rates can be even higher than high quality corporate bonds are paying.  In addition, it’s possible that your shares can go up in value as well.  Please keep in mind while juicy yields and potential share price appreciation sound great, there can be a downside as well.  Even the highest quality company’s stock prices can go down and dividends can be eliminated for many reasons.  Again, it’s important to first address your needs for short term safety, risk tolerance, and liquidity, before deciding if this is right for you. 

Other- There can be many other types of products that can be considered such as:  Fixed and Variable Annuities, Real Estate Investment Trusts and Direct Participation. I group these investments together because they can be very complicated and sometimes come with a lot of unexpected negative surprises down the road.  The income generated from these types of investments may benefit your portfolio but they also can come with risks.  So be sure to study them very closely before choosing to participate.

Everybody situation is different and arriving at solutions can get complicated.  So always consult with financial, legal, and tax professionals before making any decisions. Keep in mind that investments in REITs are subject to the inherent risks of direct investment in real estate such as price fluctuation, liquidity, and changes in interest rates.

 

 

Jon Flynn is a Certified Financial Planner ^TM and owner of Flynn Financial in Eynon. He is a Representative of Securities America, Inc., Member FINRA/SIPC and of Securities America Advisors, Inc. Flynn Financial and Securities America are unaffiliated.   Mr. Flynn can be reached at 570-876-5000.