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Income versus growth A new way to look at retirement UPDATE 6 10 2023

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With markets in continued disarray for well over a year now, investors may be looking at ways to solidify income instead of pursuing traditional growth strategies.

You really can’t blame them. The longer the market falls, the more discouraged an investor may become.

There are solutions to be able to abandon growth for long term income and looking in this direction can open up more possibilities than just buying a handful of stocks and sweating out market crashes.

Certificates of Deposits (CDs) are available both through your local bank or credit union and through most financial advisory firms. Right now, the return on CDS are healthier than they’ve been in decades due to the increase in interest rates by the Federal Reserve.

Time Frame Laddering CDs (my term here) is a sound strategy to both garner possibly higher returns along with a 100% government guarantee on principal. Laddering means buying different maturity dates which enables you to lock in returns for a longer period of time yet have some level of liquidity. For instance, buying a 6 month CD, a 1 year, 2 year and 5 year CD is an example of laddering. Although a 5 year CD would be essentially tied up for 5 years, the shorter duration CDs convert back to cash sooner according to each maturity date that you select. I wouldn’t recommend buying anything longer than 5 years out as there is too much that could happen to interest rates given the current crazy economic environment, but that’s just me.

One could certainly consider 10, 20 or even 30 year products be added to a ladder portfolio. Just make sure you understand the advantages and drawbacks of longer time commitments.

You could use the same strategy for Treasury Bills, notes or bonds. Seek out a financial professional or discuss with your local bank to understand the differences between CDs and Treasury products. These are also government guaranteed.

Buying a basket full of dividend stocks is another way to garner long term income. Dividends are sort of like thank you gifts from the publically traded companies that offer them.

Basically if you buy a share of a dividend paying company, they pay you a certain amount for every share you own every so often.

Some dividend paying companies have paid dividends for decades, and some have increased their payments every year for just as long. Be aware however that dividends can be reduced or even eliminated by the company at any time. As a general rule however, if a company have been paying dividends for years and/or has never cut them, there is a good chance they would want to preserve that track record. Another consideration of dividend paying stocks is the price of the stock could drop or go up. Going up would be nice of course but a drop in price could sting a bit. Price changes do not necessarily change your payment however but it could.

Buying bonds (debt from companies, municipalities or even states) are usually regarded as a bit more stable than stocks. They pay an interest rate and you can buy insured bonds if you’re worried about a default, and yes, defaults can happen.

Many conservative investors hold just a portfolio of bonds, having been taught by their grandfathers that bonds are a stalwart of a consistent investment strategy. Some argue however that this way of thinking is old fashion and indeed, the bond markets have been hammered like stocks on numerous occasions.

I would tend to agree that bonds, albeit, the RIGHT ONES, can be safer than holding some stocks, but in the last few decades, even bonds have, at times, been uncharacteristically volatile.

Like all investments, make sure you understand the ins and outs before venturing into the arena.

Income annuities are contracts from insurance companies that, in exchange for a payment(s) to them, they promise to pay you a certain amount for a certain period of time. Lifetime income is available and you can even select the percentage return you desire, locked in for life, if you meet certain conditions.

Not falling into the traditional discussion of what is called equities, you can always dip your toes into being a landlord and garner a property to rent out. Renting out a home, condo or mobile home, or taking advantage of the Airbnb phenomenon can supplement ones income. This route is a popular one should you be able to manage the work and investment required of such an endeavor.

Concluding, altering ones focus from capital appreciation (growth) to securing income can open up more avenues of consideration rather than just watching Wall Street all day.

“Watching the markets so you don’t have to”

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249. (530)559-1214.

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HIGH RATES MAY NOT STAY UPDATE 6 7 2023

HIGH RATES MAY NOT STAY

CONTACT ME TO EARN NORTH OF 10% ANNUALLY GUARANTEED AND UP TO 14% OR MORE

IT IS POSSIBLE!

With interest rates higher than they have been in literally decades, retail investors and pros alike are once again forgetting history, donning their dunce hats and repeating the same assumptions they did the last time rates moved with some conviction.

When offered longer term investment strategies which lock in the current high interest rates, most all those who have money to invest are turning down locked-in rate investments in lieu of short term products like 3 month CD’s and T-bills currently paying north of 5% APR.

On the surface, having the opportunity to sock money away on a 3 month term yet get over 5% APR sounds like a good deal, and it is, but it’s not the best deal.

The shortsightedness on behalf of investors that continue to scoop up 3 month T-Bills and CD’s is solely based on the interest rate and the length of the tie up. After all, 5% APR on a 3 month investment certainly sounds lucrative, but keep in mind the 5% is for 12 months, not 3 months, so you would have to buy them every 3 months, and that’s IF the interest rates doesn’t change.

And therein lies the problem.

To begin with, I am constantly bringing new investments to consumers that lately have been meant to minimize risk yet provide a decent return. The “minimize risk” part is because it is in my opinion the market may have stopped its hemorrhaging for now but I highly doubt our inflation problem will go away anytime soon and a recession looms.

Looking back on interest rates the last 2 or 3 decades illustrates a country that has a debt problem. Mainly the fact that consumer, government and business debt is continually increasing at an alarming rate.

If debt continually increases, interest rates would and will have to continually decrease to service that debt. And true to form, a three or five year moving average of interest rates in the United States show a persistent downward trend. Recent memory for many think of bank savings rates as near zero and its only recently have we seen rates as high as 5% or more.

There is a reason the Federal Reserve (FEDS), who set interest rates, have not been able maintain higher interest rates for a prolonged period of time and it’s because of our gigantic debt levels.

Every time the FEDS have increased rates in the last few decades they tend to break something and have to reduce rates again. Think back to the dot.com, Y2k and 9/11 events that resulted in the FEDS lowering rates to ground level in response. That resulted in the adjustable rate/ refinance craze which eventually resulted in financial Armageddon. That in turn caused the FEDS to drop rates to near zero once more.

Now the FEDS are back in the up mode and, if history is any indication, they will eventually break something, and be forced to drop rates again.

Investors, however, still resist to lock in the current high rates with longer commitments.

They still opt to instead buy short duration CD’s and T-Bills thinking the 5%, three month term is an incredible offering and will continue.

What they fail to realize and therefore are missing a once in a blue moon opportunity to secure high rates for years to come, is that 3 month CD’s and T-bills are just that: 3 months.

If the FEDS drop rates again, down will go the rate on the 3 month products, and you are right back to earning nothing.

Yes, a 3 month CD offering an APR of 5% looks good on the surface, but historically, they may not stay there for long.

One might consider the longer term offerings that lock in those healthy returns and guarantee them and your principal.

Although 5 year CD’s and T-bills might be actually paying lower rates, there exists annuities, laddered portfolios and other investment vehicles that will lock in rates for many years to come.

Unlike the refinance craze where many homeowners assumed when their mortgage rates adjusted they could just refinance, many investors are thinking the same thing when it comes to predicting where rates might go, versus where rates can go.

The bottom line is high interest rates might not stick around very long. Thinking they will is shortsighted and could be costly.

Better to look at history and use some common sense, and consider longer term and guaranteed solutions. In other words, get while the gettin’s good, and get those high rates locked up! Have questions? Feel free to send me an email.

“Watching the markets so you don’t have to”

(end)

(As mentioned please use the below disclaimer exactly) THANKS (Regulations)

Update June 4 2023

The Tug of War in economic policy

Readers of Money Matters will know that to curb our inflation problem, the Federal Reserve has to withdraw liquidity from the financial system. In plain English, because trillions of dollars were flooded into every town, city and state to mitigate the economic damages from the CoVid shutdowns, we now see all those dollars chasing up the price of everything from airline travel to zoo admissions and all things in between.

It’s an accepted fact that when central bankers print a lot of money, inflation is sure to follow. Just think Mexican Peso.

So now the Fed is using its monetary tools to sop up dollars, dampen consumer demand and put the brakes on the economy which will hopefully slow the rapid ascent of prices.

The Fed tools include raising interest rates, removing money from the banking system, tightening down on its credit facilities, and convincing Washington to cut back its spending.

Raising interest rates from near zero to close to 5% in a years’ time and by using their other monetary tools, the Fed has started to see some improvement. Inflation rates have cooled, the stock market has pulled back some, and the economy is indeed slowing.

Even with its progress, the Fed is fighting other things that have occurred which is making their job more difficult.

Washington has no intention of shutting off the free money spigot, and has tossed another five trillion or so into the streets of America in the last 12 months. Washington’s lack of fiscal responsibility must have Fed Chief Jerome Powell pulling his hair out. While he’s trying to remove money from the system, Washington is putting it back in.

We are also realizing money from the generous Covid payments that went to every Tom, Dick, Mary and Harry were lavish, and consumers have been spending their massive savings built up during the Covid event. Being shut in, there were few places to spend all that free money, and now that the fiasco of the shutdowns are gone (thank goodness), people are out and about and in the mood to spend. And they are spending.

Compounding the Feds efforts is the recent rash of bank failures.

Realizing a single bank failure could cause panic in the banking `system` in general, the Fed had to fire up the printing presses once again to the tune of about 300 billion (that we know of) to bail out the banks.

Some of that money, as it always seems to, found its way into the stock market. The stock market is the playground of the financial system. Give a bank a few billion, and like a kid flush with cash going to the candy store, the banks can’t wait to plow at least some of it into Wall Street to relish the sweet taste of quick profits. Sickening I know.

First Washington fights the Feds efforts by giving away even more trillions and now Powell himself is forced to fire up the presses to save some careless banks.

It no wonder the stock market has been running the last few months.

Is it a coincidence that the latest rally in the stock market coincided with the Fed bailing out the banks?

I have always said there is no such thing as coincidence where Wall Street is concerned. There are only people that know things before you do, and then make money from it.

I will stand by my prediction that inflation is here to stay and won’t go away anytime soon. The reason is simple and history confirms it.

When the Feds raise interest rates, they have a history of breaking something. In fact, it is said the Feds raise rates UNTIL they finally do break something.

And when they break something, they have to back off the inflation battle and start lowering rates and printing money again to un-break what they broke.

Indeed, they have already broke a few banks, and opened the money spigots in response.

Next up, they will probably break something else before they are forced to lower rates again.

And when they do that, they will print up even more money and hammer down rates once again. And I predict they will do that before inflation has a chance to recede to a meaningful level.

Which means I hope you have stocked up on aspirin, because besides the headaches you’re going to get, a new bottle of aspirin by that time is going to cost you twenty bucks or more.

“Watching the markets so you don’t have to”

High rates may not stay ! may 28 2023

High rates may not stay for long!

Capture them now!
I can lock them in ! Call me (530) 559-1214

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