Clear and Present Danger
Now isn’t the time for Boomers to be playing Russian Roulette with finances. Retirees depend upon interest income, along with pensions and Social Security. All three are under fire, causing some to take on riskier investments in an attempt to make up the difference between the damage caused by Fed policies pushing short and long rates down to historic lows, while encouraging inflation in food and other basic necessities, thereby constantly nibbling away at inflation adjusted incomes.
Far too many financial advisors and gurus believe today’s low interest rates are virtually guaranteed for some time as this is the Fed’s announced policy. I’ve learned over time that markets actually rule.
Since markets are not being adequately compensated for taking on increasing risks, they remain out of balance with historic norms. Just as water seeks its own level, unbalanced markets seek balance. I believe the market will eventually win this tug of war with interest rates rising to levels necessary to properly compensate investors for current risk paradigms.
The question is when and to what degree will interest rates rise. Fed policy to cause and maintain the extremely low interest rates that are necessary to fund our growing deficit spending is a huge gamble to say the least, especially since America depends upon foreigners to fund nearly half of new deficit and roll over needs.
When the markets prevail there’s going to be ‘hell to pay’ and Boomers won’t want to be holding long dated, low rate instruments. Janet Tavakoli calls out a potentially huge land mine in her latest article ‘Clear and Present Danger’. She’s far ahead of the pack on this one, so there’s time to avoid having your portfolio blown to bits by beginning to take action now.
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