Okay, I guess the one thing with which I can agree with Carla Fried, in her article (AARP Magazine, Feb.-Mar., p. 50) on the Fed's 'War on Savers' is the remark of one financial advisor (Leonard Glynn of Putnam Investments,):
"This policy is effectively a drive-by shooting of seniors!"
A bit graphic, but true. The Fed, with its zero interest rate policy is basically telling seniors who refuse to play Roulette in the stock market to go fuck themselves. That's they way they're putting it or to use Fried's more restrained parlance (p. 51):
"If you don't like the piddly rates on CDs and the like, then pour your money into stocks!"
Uh, no thanks! Because at this stage I am not prepared to lose most or even half of savings. Sorry! If push comes to shove, and as the article puts it, inflation causes conservative savings to be gobbled up at the rate of $1.60 to $1.00 (in terms of spending) every 15 years, then the next victims down the line will lose....and that means, less for charities. So if each charity now receives $5 via occasional donation, that will be cut further (say to $3), as will the total number of charities donated to. Blame Ben Bernanke, charities! Tell him to raise interest rates, at least if you expect to collect more from fixed -income seniors!
But my quarrel here is with the so-called "solutions" Ms. Fried offers to be able to at least partially escape the Fed's game - which is really to feed cheap money to speculators to bubble up the DOW again.
Let's go through them one by one:
1) Avoid fees and seek better yields.
Okay, this is fairly straightforward, in that one can at least avoid most fees if s/he sits down with a banker and arrives at a means by which to do so. Usually this just entails keeping some minimal balance, often in a savings and checking account combined.
As for chasing yield, I've learned over the years it's a fool's errand. As soon as you jump ship to take your balance to a new bank, say offering 1.5% over your old bank's 0.5%, the new bank lowers the boom on the interest in 6 months or less. So you're then forced to keep hopping around to get yield. Sorry, no. Doesn't make sense.
2) In Bonds Go for Short Term and High Quality.
This also is more or less common sense. After all you don't want to tie up your money too long, lest you miss the next interest rate increase...which may come in 2015.
Where I part company with Ms. Fried is her suggestion to go into bond funds, even junk bonds....rather than Treasurys . She says: "Yields on shorter term Treasury bonds are about as low as congress' approval ratings".
Maybe, but that doesn't mean I will go for bond funds. First of all, they are often laden with what traders call "toxic waste" including Ios (interest only strips), 'inverse floaters' and other crap. I actually advised my wife to totally get her 401k out of one "Life cycle fund" eight years ago, simply because it was losing $800 every quarter. The source? Bond FUNDS in the life cycle!
Let's also bear in mind that bond fund ratings are useless, as we saw with the 2007 meltdown when AIG, Standard & Poor's and other credit raters gave junk bonds (laden with credit default swaps) AAA ratings, when they didn't even merit CCC! My theory is, if they did it once they can do it again.
3) Use Dividend-paying stocks to Whip Inflation.
Sounds nice in theory, but not in practice. The actual number of decent, dividend paying stocks that might make up for loss of income because of Bernanke's cheapskate interest policy you can count on one hand. Even if you do find one, it's likely it won't remain so, since the yen of most companies now is to take their extra money and buy back shares to inflate the stock price, rather than dole out dividends. When the latter do get doled out, the amounts are pathetic. (Fried gives an example of a company's stock selling for $25 a share and paying $1 dividend on each such share. Well, truthfully, it's more like 0.10!)
The dumbest advice in (3) is the so-called formula for the "minimum percentage of stocks" which is:
"100 minus your age"
HUH?! So, if you're 65 years old, you will have (100 -65 = 35) or 35 percent of your savings in stocks!
And what if the bubble bursts, as in 2008? What if that 35% you're holding takes a 55% dive?
Well, I guess the old saw about "repenting at leisure" is applicable here, with the additional proviso that....make sure you store up enough cat food for the rest of your days....or get yourself in good enough shape to work at Walmart! Maybe they can use more "greeters"......besides, it will give them another "dead peasant" life insurance policy!
"This policy is effectively a drive-by shooting of seniors!"
A bit graphic, but true. The Fed, with its zero interest rate policy is basically telling seniors who refuse to play Roulette in the stock market to go fuck themselves. That's they way they're putting it or to use Fried's more restrained parlance (p. 51):
"If you don't like the piddly rates on CDs and the like, then pour your money into stocks!"
Uh, no thanks! Because at this stage I am not prepared to lose most or even half of savings. Sorry! If push comes to shove, and as the article puts it, inflation causes conservative savings to be gobbled up at the rate of $1.60 to $1.00 (in terms of spending) every 15 years, then the next victims down the line will lose....and that means, less for charities. So if each charity now receives $5 via occasional donation, that will be cut further (say to $3), as will the total number of charities donated to. Blame Ben Bernanke, charities! Tell him to raise interest rates, at least if you expect to collect more from fixed -income seniors!
But my quarrel here is with the so-called "solutions" Ms. Fried offers to be able to at least partially escape the Fed's game - which is really to feed cheap money to speculators to bubble up the DOW again.
Let's go through them one by one:
1) Avoid fees and seek better yields.
Okay, this is fairly straightforward, in that one can at least avoid most fees if s/he sits down with a banker and arrives at a means by which to do so. Usually this just entails keeping some minimal balance, often in a savings and checking account combined.
As for chasing yield, I've learned over the years it's a fool's errand. As soon as you jump ship to take your balance to a new bank, say offering 1.5% over your old bank's 0.5%, the new bank lowers the boom on the interest in 6 months or less. So you're then forced to keep hopping around to get yield. Sorry, no. Doesn't make sense.
2) In Bonds Go for Short Term and High Quality.
This also is more or less common sense. After all you don't want to tie up your money too long, lest you miss the next interest rate increase...which may come in 2015.
Where I part company with Ms. Fried is her suggestion to go into bond funds, even junk bonds....rather than Treasurys . She says: "Yields on shorter term Treasury bonds are about as low as congress' approval ratings".
Maybe, but that doesn't mean I will go for bond funds. First of all, they are often laden with what traders call "toxic waste" including Ios (interest only strips), 'inverse floaters' and other crap. I actually advised my wife to totally get her 401k out of one "Life cycle fund" eight years ago, simply because it was losing $800 every quarter. The source? Bond FUNDS in the life cycle!
Let's also bear in mind that bond fund ratings are useless, as we saw with the 2007 meltdown when AIG, Standard & Poor's and other credit raters gave junk bonds (laden with credit default swaps) AAA ratings, when they didn't even merit CCC! My theory is, if they did it once they can do it again.
3) Use Dividend-paying stocks to Whip Inflation.
Sounds nice in theory, but not in practice. The actual number of decent, dividend paying stocks that might make up for loss of income because of Bernanke's cheapskate interest policy you can count on one hand. Even if you do find one, it's likely it won't remain so, since the yen of most companies now is to take their extra money and buy back shares to inflate the stock price, rather than dole out dividends. When the latter do get doled out, the amounts are pathetic. (Fried gives an example of a company's stock selling for $25 a share and paying $1 dividend on each such share. Well, truthfully, it's more like 0.10!)
The dumbest advice in (3) is the so-called formula for the "minimum percentage of stocks" which is:
"100 minus your age"
HUH?! So, if you're 65 years old, you will have (100 -65 = 35) or 35 percent of your savings in stocks!
And what if the bubble bursts, as in 2008? What if that 35% you're holding takes a 55% dive?
Well, I guess the old saw about "repenting at leisure" is applicable here, with the additional proviso that....make sure you store up enough cat food for the rest of your days....or get yourself in good enough shape to work at Walmart! Maybe they can use more "greeters"......besides, it will give them another "dead peasant" life insurance policy!
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