By Malcolm Berko
Dear Mr. Berko:
We are in our early 80s, and our health is excellent. And our doctor, an internist, tells us we could live to 100 if we don’t get struck by lightning.
Well, our biggest problem (and our friends’, too) is the terribly low interest rates we get on our CDs and money market funds. This low interest rate, encouraged by the government, helps big business to make billions, but it doesn’t help the small-business guy who can’t borrow or retirees like us who used to get 6 percent CD and 5 percent money market rates for a good portion of our income. Now government sponsored low rates are forcing many of us to put our money at risk with higher yielding and risky investments so we can maintain our standard of living.
In 2009, my wife and I had to take $18,000 from money market for expenses, and this year, we will be taking even more. Fortunately, we have the money. We worked all our lives, we saved, we invested wisely, we paid taxes, we raised four children and we voted. But these low rates are supporting the profligacy of big business, Wall Street, hedge funds, banks and developers who destroyed the economy, rather than people like us whose collective labors supported the economy.
Now for the first time in our lives, some of us are worried about the consequences of living too long. A large group of “old farts,” as we are derisively called, are concerned that low rates will deplete our assets, and we are concerned about the treachery of the stock market. We don’t trust Moody’s, Merrill Lynch, Fannie Mae, S&P, Bank of America, or Wall Street analysts because they have proven themselves to be dishonest.
Now that I’ve got that off my chest, I — as well as others in our group of Old Farts — need to find secure investments that will provide us with higher rates than CDs and money market accounts. The Catch-22 is if we invest long term to earn 6 percent that when rates rise (and we know they will), our investments will fall in value. So adding that potential loss to the recent losses most of us took in Fannie Mae, Freddie Mac, mortgaged backed bonds, GM preferreds, bank preferreds, bond mutual funds, etc., we are between a big scary rock and a very scary hard place.
Do you have any suggestions that can give us a better yield than CDs and money market and will protect the value of our assets when rates rise? Some people, including my wife, think I’m tilting at windmills, but there’s no harm in asking you. You often surprise us, and perhaps you might again with a helpful answer.
F.L., Oklahoma City
Dear F.L.:
Thank you for your well-written, interesting two-page letter, which, as you noticed, has been edited and shortened by 80 percent. Your concerns are very common and frighteningly real. Low rates have made seniors easy prey for glib scoundrels who have no more conscience than a fox in a poultry farm. And some three to four times a month, I receive tearful letters or e-mails from seniors or children of seniors who have made some abominable investment decisions. I can’t help them, and that’s sad. The average money market fund pays .03 percent or $300 for every $100,000, while CDs and short-term Treasuries pay less than 2 percent. Seniors are desperate. And desperation and money make bad bedfellows.
Short-term bond funds offer a reasonable measure of stability and a safe place to part till rates begin to move back up. And believe me, the pressure for rates to rise is significant. However, the administration wants rates to remain low for the foreseeable future.
Some money managers use the T. ROWE PRICE SHORT TERM BOND FUND (PASHX – $4.85), which yields 3.0 percent. PASHX is one of the few short-term bond funds that didn’t lose a centime in 2006, 2007, 2008 or 2009. There is no sales charge to own it.
And other managers put their clients into iSHARES BARCLAYS 1-3 YEAR CREDIT BOND (CSJ – $104.30), which yield 3.6 percent. Year over year since 2007, it has not lost money either. This $5 billion Exchange Traded Fund owns more than 600 bonds and trades on the Big Board just like a common stock. It will cost you $8.95 to buy 100 or 1,000 shares from Schwab.
That’s the best I can do; however, there are 5.0 percent to 6.0 percent current returns if you are comfortable taking higher risks.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com. © 2010 Creators Syndicate Inc.
