• curiouscat.com
  • About
  • Books
  • Glossary

    Categories

    • All
    • carnival (41)
    • chart (8)
    • Cool (35)
    • Credit Cards (45)
    • economic data (62)
    • Economics (439)
    • economy (126)
    • Financial Literacy (292)
    • Investing (324)
    • Personal finance (356)
    • Popular (43)
    • quote (194)
    • Real Estate (120)
    • Retirement (65)
    • Saving (90)
    • Stocks (158)
    • Taxes (51)
    • Tips (129)
    • Travel (7)

    Tags

    Asia banking bonds capitalism chart China commentary consumer debt Credit Cards credit crisis curiouscat debt economic data Economics economy employment energy entrepreneur Europe Financial Literacy government health care housing India interest rates Investing Japan John Hunter manufacturing markets micro-finance mortgage Personal finance Popular quote Real Estate regulation Retirement save money Saving spending money Stocks Taxes Tips USA

    Recently Posts

    • New Health Care Insurance Subsidies in the USA
    • Individual Stock Portfolio Investment Planning
    • Finding Great Investments Keeps Getting Harder
    • Huge Growth in USA Corporate Debt from 2005 to 2020
    • Retirement Portfolio Allocation for 2020
    • Tencent Gaming
    • Tucows: Building 3 Businesses With Strong Positive Cash Flow
    • The 20 Most Valuable Companies in the World – Jan 2019
    • 20 Most Popular Posts on the Curious Cat Investing and Economics Blog in 2018
    • An Inverted Yield Curve Predicts Recessions in the USA
  • Blogroll

    • Curious Cat Management Improvement Blog
    • Freakonomics
    • I Will Teach You to be Rich
    • Jubak Picks
  • Links

    • Articles on Investing
    • fool.com
    • Investing Books
    • Investment Dictionary
    • Leading Investors
    • Marketplace
    • Trickle Up
  • Subscribe

    • RSS Feed

    Curious Cat Kivans

    • Making a Difference

Investing and Economics Blog

Where to Invest for Yield Today

Yields are staying amazingly low today. Due to the credit crisis the federal reserve is shifting hundreds of billions of dollars from savers to bankers to allow banks to make up for losses they experienced (both in losses on bad loans and huge cash payments made to hundreds of executives over more than a decade). For that reason (and others) yields are extremely low now which is a great burden on those that saved and counted on reasonable investment yield.

Don’t be fooled by apologist for those causing the credit crisis that try and excuse their behavior and act as those paying back the bailout payments means they paid back the favors they were given. They have received much more from the policies of the federal reserve that has taken hundreds of billions of dollars from savers and given it to bankers. It has the same effect as a direct tax on savers being paid to bankers.

What is an investor/saver to do? James Jubak provides some excellent advice.

How to maximize what your cash pays even when nothing is paying much of anything now

A three month Treasury bill pays just 0.12%. A two-year note pays just 0.79%. Inflation may not be very high at an annual rate of 2.6% for headline inflation (and 1.6% minus volatile energy and food prices) but it’s enough to eat up all the interest from those investments and more. (TIPS, Treasury Inflation-Protected Securities will protect you from inflation but the yields are really low (1.43% for a 10-year TIPS at recent auction) and they only protect you from inflation and not rising interest rates. I-Bonds, a savings bond that pays an interest rate that combines a fixed component, currently 0.3%, with an inflation-adjusted variable rate, current 3.06%, offer a higher yield but since the variable rate is pegged to inflation and not interest rates, the yield on these bonds won’t necessarily go up if interest rates do. You also have to hold for at least 12 months. (After that and until you’ve held for 5 years you lose the last 3-months of interest when you sell.)

You could lock your money up for decades and get 4.56% in a 30-year Treasury bond but 30 years is forever. And besides interest rates have to go up from today’s lows and that means bond prices will be coming down, probably fast enough to eat up all the interest that bond pays and more.
…
Not if you remember that interest rates are going up in most of the world (except maybe Europe and Japan) quite dramatically over the next 12 months. A year from now, perhaps sooner, you’ll be able to get yields swell north of anything you can find now.

That pretty much means that you’re guaranteed to lose money two ways by locking it up for the long term now.
…
For the short term you need to put your cash into something that’s as safe as possible but that offers you as much income as possible—and that doesn’t lock up your money for very long.

My choice dividend paying stocks—if they pay a high dividend, are extremely liquid, and are battle tested.

Whether you agree with his suggestions in the article is up to you. But even if you don’t he provides a very good overview of the options and risks that you have to navigate now as an investor seeking investments that provide a decent yield. I agree with him that interest rates seem likely to rise, making bonds an investment I largely avoid now myself.

Related: posts on financial literacy – Jubak Picks 10 Stocks for Income Investors – S&P 500 Dividend Yield Tops Bond Yield: First Time Since 1958 – Bond Yields Show Dramatic Increase in Investor Confidence

March 8th, 2010 John Hunter | 4 Comments | Tags: Economics, Financial Literacy, Investing, Personal finance, Saving, Tips

Comments

4 Comments so far

  1. United Online: High Dividend Yield at Curious Cat Investing Blog on July 25, 2010 4:09 pm

    Stocks paying high dividends in this market (low interest rates) are attractive but not without risk. United Online is certainly risky but the high yield sure is attractive…

  2. Earnings and Dividends Grown, Bond Yields Sink at Curious Cat Investing and Economics Blog on September 7, 2010 6:05 am

    Seeking out solid companies with strong long term prospects that pay reasonable dividends is a very sensible strategy today…

  3. Bond Yields Stay Very Low, Treasury Yields Drop Even More at Curious Cat Investing and Economics Blog on November 3, 2010 10:28 pm

    […] do not have many good options for safely investing retirement assets for a reasonable income. The best options are probably to […]

  4. Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation at Curious Cat Investing Blog on February 24, 2011 11:47 am

    It is not less risky to have your entire retirement in treasury bills than to have a portfolio of stocks, bonds, international stocks, treasury bills, REITs…

Name (required)

Email (required)

Website

Speak your mind

« USA Unemployment Rate Remains at 9.7%
“What the Financial Sector Did to Us” »
Copyright © Curious Cat Investing and Economics Blog

    Personal Finance

    • Credit Card Tips
    • IRAs
    • Investment Risks
    • Loan Terms
    • Saving for Retirement
  • Archives

      All Posts
    • March 2021
    • January 2021
    • August 2020
    • March 2020
    • February 2020
    • January 2020
    • May 2019
    • January 2019
    • December 2018
    • November 2018
    • October 2018
    • August 2018
    • May 2018
    • February 2018
    • January 2018
    • November 2017
    • October 2017
    • September 2017
    • August 2017
    • July 2017
    • May 2017
    • April 2017
    • March 2017
    • February 2017
    • January 2017
    • December 2016
    • November 2016
    • October 2016
    • September 2016
    • August 2016
    • July 2016
    • June 2016
    • May 2016
    • April 2016
    • March 2016
    • February 2016
    • January 2016
    • December 2015
    • November 2015
    • October 2015
    • September 2015
    • August 2015
    • July 2015
    • June 2015
    • May 2015
    • April 2015
    • March 2015
    • February 2015
    • January 2015
    • December 2014
    • November 2014
    • October 2014
    • September 2014
    • August 2014
    • June 2014
    • April 2014
    • March 2014
    • February 2014
    • January 2014
    • December 2013
    • November 2013
    • September 2013
    • August 2013
    • July 2013
    • June 2013
    • May 2013
    • April 2013
    • March 2013
    • February 2013
    • January 2013
    • December 2012
    • November 2012
    • October 2012
    • September 2012
    • August 2012
    • July 2012
    • June 2012
    • May 2012
    • April 2012
    • March 2012
    • February 2012
    • January 2012
    • December 2011
    • November 2011
    • October 2011
    • September 2011
    • August 2011
    • July 2011
    • June 2011
    • May 2011
    • April 2011
    • March 2011
    • February 2011
    • January 2011
    • December 2010
    • November 2010
    • October 2010
    • September 2010
    • August 2010
    • July 2010
    • June 2010
    • May 2010
    • April 2010
    • March 2010
    • February 2010
    • January 2010
    • December 2009
    • November 2009
    • October 2009
    • September 2009
    • August 2009
    • July 2009
    • June 2009
    • May 2009
    • April 2009
    • March 2009
    • February 2009
    • January 2009
    • December 2008
    • November 2008
    • October 2008
    • September 2008
    • August 2008
    • July 2008
    • June 2008
    • May 2008
    • April 2008
    • March 2008
    • February 2008
    • January 2008
    • December 2007
    • November 2007
    • October 2007
    • September 2007
    • August 2007
    • July 2007
    • June 2007
    • May 2007
    • April 2007
    • March 2007
    • February 2007
    • January 2007
    • December 2006
    • November 2006
    • October 2006
    • April 2006
    • March 2006
    • January 2006
    • December 2005
    • October 2005
    • July 2005
    • May 2005
    • April 2005
    • April 2004