According to reporters Susanne Walker and Liz Capo McCormick of Bloomberg, “just because the Federal Reserve is about to raise interest rates, don’t expect savers to benefit.”
The recent Bloomberg article explains that those individuals who have counted on higher interest rates to lift their investment returns are being blocked by regulations designed to make the financial system safer in the wake of the credit crisis. That credit crisis effectively dried up liquidity in debt markets. Walker and McCormick noted that “the rules are pushing firms to park more excess cash into Treasury bills that yield next to nothing, squeezing money-market funds that buy the short-term debt.”
According to Christopher Sullivan of United Nations Federal Credit Union, “You’ve got the worst of all possible worlds for savers.”
Unfortunately, according to the Bloomberg analysis, baby boomers nearing retirement will be the most deprived of income long after the Federal Reserve starts to increase interest rates.
You can read more of Walker and McCormick’s analysis here.
Here’s our take: Finding investments that make sense from a risk and return perspective continues to be difficult. With bonds yielding next to nothing and stock market volatility continuing to challenge investors, it’s time to look outside of traditional investments. Cost of living will only increase. Investors may find it difficult to rely on traditional, short-term investments to offset cost of living increases. Fortunately, alternatives are available for people looking to diversify their investment portfolio.
Courtesy of FullCapitalStack, a QuietStream Financial portfolio company.