Itchy Investors Ramp Up the Risk

One of the most frustrating issues facing investors especially savers is the low interest rate environment we have been in for the past several years.  The Fed and it's leader Mr. Bernanke openly acknowledges that the Fed's decisions are having an adverse impact upon the nation's savers especially those that depend upon fixed income securities to support them during retirement.


Another and more problematic side affect of low interest rates is that it can force people into uncomfortable investments and potentially more risky investments in search of higher yields and returns.  Just this week I was having a conversation with someone who is on the extreme risk adverse side of the fence.  Preparing for retirement in the next few years he was afraid of loosing money.  There in lies the crux of the problem faced by investors who have been burned by the previous stock markets slides of the past decade, not wanting to take additional risk but needing a better return than what fixed income securities can provide in order to make it through retirement.


So what is the solution?  You have to strike a balance between taking on additional risk you can be comfortable with in order to go after the returns you need in order to sustain your retirement or savings goals.


The WSJ journal ran a piece Itchy Investors Ramp Up Risk that covers these issues laid out above.

• Low interest rates of the past several years have taken a toll on U.S. savers. All told, Americans collected interest income from CDs, savings accounts, insurance products and other sources at a seasonally adjusted, annualized rate of $976 billion in the fourth quarter of 2011. That's down nearly a third from the peak rate of $1.42 trillion in the third quarter of 2008.
• Yields on four-year CDs have fallen to 0.88% currently from 2.74% in February 2008, according to Bankrate.com. Yet inflation has averaged about 2% over the period.
• In congressional testimony on Thursday, Fed Chairman Ben Bernanke acknowledged that low rates penalize savers. "We understand it's an issue for many people," he said. "That being said, our savers collectively have to hold all the assets in the economy and a strong economy produces much better returns in general."