Investing While Rates are Low

For Mark Roberts’ Use:

For the past three years, interest rates have remained at exceptionally low levels, and are expected to continue this way until at least the end of 2014. On the other hand, market volatility has been high, creating a challenge for risk-averse investors who hope to improve their returns.

For those approaching retirement, capital preservation is important. However, the portfolio needs to outpace inflation in order to last throughout the retirement years. When creating an investment strategy, it’s important to factor in the prospect of continued low interest rates. But how?

Cushion with cash. With interest rates remaining low, savings accounts, CDs, and money market accounts don’t offer much income potential. However, their stability makes these types of accounts important in mitigating the impact of market volatility. In order to handle unexpected expenses, keep some cash reserved in liquid accounts. This will also preserve some available money in case of future investing opportunities.

Brace with bonds. Even with low interest rates, bonds may play a part in your portfolio, but choose them utilizing the same discretion you would use if rates were higher. Bonds with longer maturities may offer higher yields, but that money will be tied up in the event more attractive interest rates emerge in the future. This is a decision to weigh carefully, since it implies the risk of missing out on a better opportunity later on.

Dividing into dividends. For those who are wary of investing in a volatile market, one option is to focus investments toward well-established companies who pay dividends. US corporations currently hold a near-record amount of cash reserves, and many increase dividends when they hold excess cash. Dividend-paying stocks can be less volatile, and by reinvesting dividends you can increase the potential for total return over the long run. Since future dividends are not guaranteed, however, this is a decision to weigh carefully with your financial advisor.

Sources:

1) Federal Reserve, 2012

2) Yahoo! Finance, 2012

3) Time.com, January 18, 2012

4) The Fiscal Times, February 10, 2012

About the Author: Mark Roberts

In addition to managing clients’ money and giving investment and diversification advice, Mark offers something that “the other guys” don’t - a unique approach to Retirement Tax Strategies and distribution. Time and time again, Mark meets with new clients who tell him they have a great relationship with their financial advisor but have never been offered information on this kind of approach to securing their financial futures. Mark has taken this feedback to heart and works tirelessly to ensure that his strategies focus on taxes and distribution. Mark started selling insurance for a major insurance company right out of high school to help put himself through college. After graduating with a degree in finance, he dove into estate planning on the financial side to set himself apart from other financial advisors. However, as changes were made to estate tax laws over time, Mark shifted his focus to income tax strategies. Mark’s philosophy is “the blue prints are more important than the wall paper or carpet.” The wall paper and carpet represent products like investments and insurance policies, whereas the blue prints represent the strategies. Once strategies that truly fit the client’s needs are put in place, our focus can shift to providing you with the right products. According to Mark, “It doesn’t matter what carpet we use if the walls are not in the right place.” Our approach to money management is designed to generate the largest alpha (quality) with the lowest standard deviation and beta (risk). By doing this, we help provide clients with the highest return on the lowest risk. Generating income for our retirees is also very important. Because withdrawing money from your portfolio hurts the account rather than helping it, our goal is to design income strategies to harm the portfolio the least making the money last longer.

Investing While Rates are Low

Investing While Rates are Low

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About the Author: Mark Roberts