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Trading Lessons

Fed’s Actions Makes for a Retirement

Personal_Finance / Pensions & Retirement Mar 25, 2013 - 06:41 PM GMT

By: InvestmentContrarian

Personal_Finance

George Leong writes: On the surface, the Federal Reserve’s objective is to make sure America doesn’t fall into ruins. Following an aggressive strategy of monetary easing, the end result is interest rates at nearly zero percent and an endless flow of easy money. As I have already stated many times in these pages, the Federal Reserve has created an artificial economy.


Yet, if you think about it, the Federal Reserve’s push for low interest rateshas helped the economic recovery—but it has also made life difficult for many Americans. The Federal Reserve’s low finance rates tend to make consumers buy more, enticed by the low carrying charges. This means more buying in homes, furniture, cars, clothes, or whatever goods and services that can be financed at cheap rates. But therein lies the problem. What happens when the Federal Reserve begins to raise interest rates? It’s going to get ugly.

There will be massive debt loads that will be subject to higher carrying charges and greater hardships for many consumers as wages for many continue to be flat.

And with the low interest rates due to the Federal Reserve, people are reluctant to save. Making less than one percent at the bank is not exactly an incentive to deposit money. In my last article, I discussed this issue of low savings. According to the Employee Benefit Research Institute (EBRI), a staggering 57% of workers surveyed said they had less than $25,000 in combined household savings and investments, excluding their homes. (Source: Greene, K. and Monga, V., “Workers Saving Too Little To Retire,” Wall Street Journal, March 19, 2013.) The problem is that the low savings now will likely translate into hardship in their retirement years. In fact, we are already seeing seniors working later in life, at a time when they should be living carefree.

Seniors who depend on interest income are facing historically low income from their investments. Imagine making 25 basis points on $1.0 million in savings; that’s a mere $2,500 a year in income! And this is with a million dollars! The majority of Americans don’t even come close to this figure as far as savings. Can you see the problems? It will be extremely difficult for seniors who depend on interest-bearing income. The Federal Reserve knows this, but they have little choice at this time.

The reality is that the low interest rate climate created by the Federal Reserve is helping those who have the money to buy, whether it’s a primary residence, investment property, or financing for equity investments.

The low rates are also helping Uncle Sam avoid massive interest payments on the $16.7-trillion national debt; albeit, the time will come when rates move higher along with the government’s debt carrying costs. And can you imagine the consequences?

With the possibility of further financial distress down the road for America, you will need to be proactive and look for ways to help shelter your investments. My favorite holdings in case the U.S. falters include gold and silver, dividend-paying blue chips, T-bills, and “AAA”-rated bonds from America’s top companies.

Source:http://www.investmentcontrarians.com...

By George Leong, BA, B. Comm.
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

George Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. See George Leong Article Archives

Copyright © 2013 Investment Contrarians- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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