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| Sharon Daniels, President
Weiss Capital Management |
Financial markets around the world have enjoyed a major bounce since March.
U.S. stocks … foreign stocks … commodities … even long-term government bonds have rebounded far off their lows. But when it comes to short-term savings rates, they haven’t BUDGED one iota.
In fact, yields on bank CDs, money market funds, even short term Treasury Bills are STILL stuck near ZERO!
Plus, the Federal Reserve apparently has no intention of raising rates anytime soon … so if you haven’t done so already, then you’d better prepare yourself for ultra-low interest rates to continue.
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If your goal is to aim for good, steady income while minimizing risk, then you face even GREATER challenges today.
Interest rates are abnormally low. Banks continue to fail. And new risks are bursting onto the scene with a falling dollar and perhaps rising inflation down the road.
Those focused primarily on fixed income investments to meet their spending needs may have to consider postponing retirement OR drastically changing their lifestyles to adjust to a world of near ZERO yields!
Consider the facts: Recently, the interest rate on six-month Treasury Bills plunged to the lowest level EVER recorded … a measly TWO-TENTHS of ONE PERCENT (0.22%)!1
This means a drastic reduction in your income … for every $100,000 you have invested … you’re getting paid only $220 for the entire year!
That’s a far cry from the early 1980s, when investors could lock in juicy yields of 13% on six-month Treasuries. Back then, a $100,000 investment threw off an adequate income of $13,000 per year — fifty-times more income than you can earn at today’s puny rates.2
At Weiss Capital Management†, we are well aware of the challenges facing fixed income investors today … many come to us confused about what to do and worried about how to make ends meet. Even worse, many are taking on significantly more risk than may be prudent, just to make up for today’s low yields, but that’s NOT the answer in my view.
| External Sponsorship |
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Looking for HIGHER Yields than Today’s low interest rates have investors worried about earning an adequate income stream during retirement. Here’s one option worth considering: Weiss Diversified Income Builder* This managed investment strategy is designed to provide:
 Weiss Capital Management, Inc. |
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Instead, we’re doing everything in our power to help provide you with alternatives to 0% yields. This Wednesday, October 14, we’re hosting a special web conference, Earning Higher Income in a Low Yield Market, and I’m extending this special invitation for you to join us … at no cost.
We understand that fixed income investors face a totally different world today. The BIG question is: How can you earn higher current income in a world of near ZERO yields?
Fortunately, there ARE strategies you can use to boost your income — without jumping headlong into high-risk investments.
First, it must begin with a discussion about the kinds of risk you need to be aware of when investing in fixed income markets.
Last year, investors seemed most concerned about credit risk … in other words, the risk of losing principle in the event of a major default.
In the wake of the Lehman bankruptcy, among other high profile failures last year, investors stashed their money in the relative safety of short-term Treasury bills and money market accounts. This reaction is typical for investors during economic or financial crisis. That’s because U.S. Treasuries are considered one of the most secure investments on earth — backed by the full faith and credit of Uncle Sam.
Of course, this “backing” as some see it, doesn’t mean as much as it used to, but to get it, you must sacrifice yield in the process … which involves taking on another risk … namely interest rate risk … or the risk of future inflation.
Look at it this way, to earn a paltry 2.4% annual yield, you must go all the way out to a five year Treasury note today. But, you may not want to lock-up your money for so long, after all a lot can happen to interest rates and inflation over the next five years.3
Consider that inflation has averaged about 3% historically, and it’s a good bet that it may head even higher over the next several years.4 If so, then you could still LOSE money in this supposedly risk-free five year Treasury yielding only 2.4% … that’s because you’ve lost purchasing power to the rising cost of living.
But what are your alternatives and what’s the best way to deal with the risks of investing in fixed income securities? There are no easy answers, because everyone’s income needs and tolerance for risk is somewhat different.
One of the ways we deal with these risks at Weiss Capital Management is through diversification and by applying a global perspective.
Since different bonds have different risk characteristics, it is possible to minimize risks by blending together many different types of fixed income securities. For the most part, we use bond funds rather than individual bonds in our strategies at Weiss Capital. That’s because mutual funds are automatically diversified to some degree — each fund may hold hundreds of different securities.
We also diversify by investing in funds with different maturity ranges … which can help reduce the inflation or interest rate risk you might face in coming years. Finally, another way we diversify our holdings at Weiss Capital Management is by taking a global perspective.
Some of the very best opportunities today aren’t even in U.S. markets, but in foreign countries. If you look beyond our borders, you’ll find many countries AND companies that are:
- Healthier than the U.S. economically …Â
- With stronger currencies than the U.S. dollar …Â
- And, that offer higher interest rates than you can find in U.S. markets.
In fact, the credit quality of many foreign bonds is just as good — and in some cases better. So in many instances there is little or no tradeoff in terms of credit risk. Of course, international investing carries its own unique risks, which our Weiss Portfolio Managers take into consideration when investing overseas. And through broad diversification, these risks can be reduced. In our view, taking a global income perspective can offer you the best of BOTH worlds.*
By using these, and other fixed income strategies, you can realize the potential for earning higher yields in today’s low interest rate climate.
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The Weiss Diversified Income Builder program is one program we’ve designed with the goal of producing higher levels of income. The average 12-month yield on the investments held in this program as of September 30 was about 6.5%. Granted, that number is based on a forward-looking estimation of the income generated by the current holdings as of that date, and yields can fluctuate daily.
Still, that’s more than TWICE the yield you can earn from long-term U.S. Treasury bonds.
Clearly, these higher yields don’t come without adding some risk, and it’s important to point out that this managed investment strategy is NOT FDIC insured nor is it guaranteed, and you can lose value from market fluctuations.
However, it’s just as important to understand that you DO have alternatives available for your fixed income portfolio, even in a world of near ZERO yields!
If you want to learn more about how to earn higher income in a world of abnormally low rates, then we invite you to join us for an exclusive online video presentation:
Earning Higher Income in a Low Yield Market, which airs this Wednesday, October 14, at NOON. It takes only seconds to register, and it won’t cost you a penny. Just go here to reserve your place now!
Best wishes,
Sharon A. Daniels
President
Weiss Capital Management, Inc
* This presentation discusses the Weiss Diversified Income Builder program, suitable for investors with a MODERATE risk tolerance. It is not FDIC insured and may lose value like any other investment.
Please note: International investing presents certain risks not associated with investing solely in the United States. These include, for instance, risks related to fluctuations in the value of the U.S. dollar relative to the values of other currencies, custody arrangements made for foreign securities, political risks, differences in accounting procedures, and the lesser degree of public information required to be provided by non-U.S. companies.
†Weiss Capital Management (an SEC-Registered Investment Adviser) is a separate but affiliated entity of Weiss Research, the publisher of Money and Markets. Both entities are owned by Weiss Group, LLC.
The preceding editorial may contain forward-looking statements regarding intent and belief with regard to Weiss managed strategies and the market in general. Readers are cautioned that actual results may differ materially from those statements.
Complete Performance:
Returns Thru 6/30/2009
1 U.S. Treasury, Daily Treasury Yield Curve, 9/9/09
2 Federal Reserve, Treasury bills secondary market rates annual, 10/7/09
3 U.S. Treasury, Daily Treasury Yield Curve, 9/9/09
4 Ibbotson, Haver Analytics, FMRCo (MARE) as of 4/15/09
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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