January 27th, 2012
The FOMC (Federal Open Market Committee) finished their January meetings this week. They usually meet every six weeks and outside of a sudden change that affects the economy they won’t meet again until March. Of particular interest to savers is the commitment to keep rates low, well into 2014. Their goal is to keep borrowing rates low to spur on lending and improve the economy. For people seeking loans this is great news. For people living off of savings and fixed income savings it is awful. There has got to be a better way. Matter of fact, continuing to encourage debt over savings just shows our wonderful leaders didn’t learn anything these last few years. They are also encouraging greater risk taking for the savers because they will be tempted to seek yield which often leads to making poor investment decisions.
I am working on an article about volatility in a portfolio versus consistency. Hopefully that may help a few from seeking too high risk/yielding investment vehicles. Two months ago I personally put some funds into a 10-year CD through my brokerage account. I just felt for me, I would rather have the guarantee than the stress of worrying about the ups and downs in the market. My own portfolio is made up of a few CDs, and four ETFs (US Broad Index, REIT, Short-term Treasuries, and TIPS).
When it comes to CD rates expect the rates to fall further and the curve to flatten. Their is still a bit of spread between the short-term and long-term CDs, but I don’t think it will last too much longer. 1-year CDs will slide closer to 0.25% and 5-year CDs probably below 1.00%. Institutional CD Rates have already been in the low 1.00%’s. I’m guessing the time frame would be over the next 6-months. If you just aren’t sure about locking your rates in for the long-term, then put some short and some long. Pentagon (NCUA insured) has one of the top 1-year rates out there at 1.16% and a 7-year CD at 2.75%. They typically change rates once a month. However, this maybe one of those times they don’t wait. If you have some excess funds take a look at them.
What are your thoughts? Would enjoy some dialog.
-- By +Chris Duncan