Posted on Friday, 27th April 2018 by Dennis Damp
Print This PostLow interest rates over the past decade have driven many to abandon secure FDIC insured savings, Treasury Bills and Notes for higher risk investments such as stocks, ETFs, and mutual funds. A good number of savers simply left their savings in very low yielding bank accounts and suffered the loss of income and decreased buying power during this period. Recently, interest rates have climbed to a point where it now makes sense to consider stashing some of your cash and profits from your investment accounts into CDs, bonds, Treasury Bills and Notes.
Recently the yield on 10 year Treasury notes reached 3%, a rate that tends to attract investors away from the stock market. We are currently in one of the longest recoveries in history and as interest rates rise stock prices tend to fall. Markets become highly volatile as they enter the final stages of a recovery and skittish investors find it difficult sleeping at night. Investors seek out safety to protect their life savings and retirees especially need to protect their assets. You simply don’t have the income or time on your side to recover from a protracted market correction or worse yet, RECESSION.
What are your options?
- Recently the yield on 26 week (6 month) U.S. Treasury Notes reached 2.033% on April 26, 2018. I purchased 6 month notes at the auction that day. For me it didn’t make sense to purchase the one year bills because they were only paying slightly more than the 6 month bills plus you can opt to have your notes reinvested automatically up to four times at the new, hopefully higher, rates 6 months down the road.
- I savings Bonds are paying 2.58% through April 30th. The rate changes every six months and the May rate is expected to be close to the current rate with a potentially higher fixed rate component. I Bonds have both a fluctuating interest rate that changes every 6 months and a fixed rate, the new fixed rate is expected to increase from .1% to .2% or higher. Individuals are limited to purchasing $10,000 a year, $20,000 for a couple. Sign up on the Treasury Direct website to register and buy bills, notes, and bonds of all types.
- EE savings bonds are paying a meager .10%, however if you hold EE bonds for 20 years you are guaranteed to double you investment and you will earn 3% if held for 20 years.
- CDs – It is difficult finding CDs paying close to this yield although if you look you can find them. We purchased 13 month CDs late last year and again earlier this year paying 2% from two different Credit Unions.
- Thrift Savings Plan Bond Funds – The TSP’s Government Securities Fund (G Fund) yielded 2.33% last year with a 10 year average yield of 2.38%. The Fixed Income fund (F Fund) averaged 3.54% last year with a 4.27% yield over the past 10 years. The G Fund is the only bond fund that I know of that is guaranteed never to decrease in value.
- TSP’s L Income Fund – This fund invests 80% in the two bond funds, 74% G and 6% F and the remaining 20% is divided among the C, S and I funds, 11.2% C, 2.8% S and 6% I. This fund invests 20% in stock funds with the intent to help you keep up with inflation. The L Income fund (L Fund) averaged 6.19% last year with a 3.8% yield over the past 10 years.
- Short Term Bond Funds – When bond yields and interest rates rise mid to long term bond fund values tend to initially drop considerably because the bonds these funds are holding have lower yields. Short term funds that hold bonds with maturities from 1 to 3 years are less susceptible to rising yields. There are many short term bond funds to choose from including Vanguard’s ETF “BSV” and the VFSTX Vanguard Short term Investment Grade Bond Fund which yields 2.8%, to name a few.
There are many ways to reduce your downside market risk including the options listed above. Another way is to add balance to your investments through balanced mutual funds that have been around for many years. Many use these funds in their portfolios as anchors and then build around them. The Vanguard Wellington Fund VWELX was established in 1929! Vanguard also offers the more conservative Wellesley fund VWINX and the American Balanced Fund BALFX (F1 Shares) is favored by many.
Balanced funds typically hold between 60 to 65 % in large dividend paying stocks and 35 to 40% in bonds. These are managed funds and their financial analysts follow the market and adjust the fund investments to provide reasonable gains as appropriate and they have a good track record. The Vanguard Wellington fund is more conservative with 60 to 65% in bonds and 30 to 35% in large value stocks. All three of these balanced funds are awarded 5 star Gold ratings by Morningstar and the management fees are low with no loads.
If you are concerned about market volatility and large weekly DOW and S&P price movements now may be the time to consider taking some risk off of the table and putting more into your cash and cash equivalent accounts. I wrote an article in 2012 titled The Way it was Then and Why that shows just how much the overall cost of things have and will continue to increase as time goes by. It is a good time to look closely at your investments to determine what you need to do to protect the assets you worked a lifetime to accumulate.
Request a Federal Retirement Report™ today to review your projected annuity payments, income verses expenses, FEGLI, and TSP projections.
Helpful Retirement Planning Tools / Resources
Distribute these FREE tools to others that are planning their retirement
- Retirement Planning Guide
- Financial Planning Information
- Thrift Savings Plan
- Master Retiree Contact List (Important contact numbers and information)
- 2018 Leave and Schedule Chart (Excel chart tracks all leave balances. Use this chart to set target retirement dates.)
- Annuity Calculator (FREE Excel chart estimates annuity growth)
Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.
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