Today's
low interest rates are hitting people
hard. Many have tolerated the dismal yields on CDs
and
money
markets with the hope that rates will recover
soon.
But
they shouldn't hold their breath. A
survey of
historical
returns shows that today's rates are very
close
to normal. Since 1926, Treasury bill
rates have
averaged
3.7 percent annually.
Confronted
with this reality, people must find
ways
to make their money work harder.
The
dread of assuming a higher risk often
discourages
people from moving to higher yielding
corporate
bonds, municipals and other fixed income
securities. But what's so safe about earning a
negative
return from a CD? After deducting taxes
and
inflation,
today's rates are earning a negative yield.
If
you like investing in individual bonds, you can
assemble
a bond ladder of different maturities to
reduce
the risk of rising interest rates and longer
maturities. Investors who want professional asset
management
can diversify through income oriented mutual
funds. However, be aware that a fund's value will
fluctuate
with the rise and fall of interest rates.
Don't
shy away from stock mutual funds simply
because
you live on a fixed income. If you're a
younger
retiree, you need to maintain a growth
component
in your portfolio. In addition, utility
stock
funds and balanced funds can offer income and
growth
in moderate doses.
Managing
your money is serious business,
especially
when assembling a securities portfolio that
meets
your expense needs. Don't hesitate to
consult a
professional
advisor.
One
of the most dangerous bits of advice floating
around
is telling people to do it themselves and look
for
a discount stock broker who will give them the
lowest
price per trade. If you aren't an
experienced
market
trader, you should be using professional
managers,
and you should not be trading so often that a
$10
commission difference per trade makes a difference
to
you. Most people who lose in the stock
market try to
pick
their own stocks, use discount brokers, and don't
have
a diversified, professionally managed portfolio.
Of
course, the very magazines that run great articles
comparing
trade commissions at different discount
brokerage
houses are the very magazines that have pages
of
expensive advertising from discount brokers -- so
they're
not about to suggest to you that perhaps your
best
deal is to avoid the discounters and pay for a
more
profitable and safer portfolio.
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