Being Patient With Our Savings

Low risk investments are paying historically low returns.  Savings account pay about 0.1%.  Even CDs up to two years are paying less than 1% interest.  The "experts" are encouraging savers to invest in riskier assets to increase returns.  They believe that low interest CDs/accounts may be the riskier asset due to inflation.

I remember the last time when savings and accounts were considered the riskier assets.  It was during the 80s and interest rates and inflation were in the double digits.  I recall being chastised for buying a five year 14% CD.  After all, many believed interest rates would continue to rise and that fixed rates investments would have negative returns after inflation.  As it turned out, interest and inflation did decline back to historical levels, resulting in an excellent return for the 14% CD.

Similarly, I believe that interest rates will return to historical levels since the Fed is targeting for a 2014 ending date, which may be extended to 2015.  Patience should eventually payoff. 

For more on The Practice of Personal Finance, check back every  Wednesday  for a new segment.

This is not financial advice. Please consult a professional advisor.

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