From CEO to Walmart Greeter – How the Government has Screwed Retirees
…And what you, the retail investor, can do to avoid a similar fate.
Was that Ed?
Ed was a friend of my dad’s who used to be CEO of a multi-million-dollar consulting firm.
I hadn’t seen him in years…
He greeted me with a smile as I entered the store, wearing that classic blue How May I Help You? vest.
But I could tell from his eyes he was embarrassed.
So I nodded politely and moved on.
After I got home, I called my dad and asked him what the hell had happened.
Dad’s answer – Ed was broke.
His wife had been diagnosed with cancer, and even though they had health insurance, it hadn’t covered everything.
I blame the U.S. government for Ed’s plight.
I also blame the government for putting tens of millions of American retirees in his position.
See, until early 2001, there had been an informal contract between American workers and the federal government.
That contract went something like this:
Work hard, save, and when it’s time to retire, you can live off the interest on your savings.
That strategy worked well for decades.
Then the Federal Reserve started cutting interest rates.
From the mid-1960s through early 2002, U.S. interest rates on 6-month Certificates of Deposit (CDs) rarely dipped below 5%.
In fact, during much of the 1970s and 1980s, they were at double digits (even hitting a whopping 17.98% in 1981).
Then came the 2001 recession
Over the next four years, the Fed forced interest rates to stay below 2%.
And while they would rise above 5% between 2006 and 2007, the writing was on the wall – retiring off the interest on your savings would be all but impossible.
Now interest rates on 6-month and 1-year CDs are below 1%, and have been for over 10 years.
The Fed forced interest rates down because they wanted to lower borrowing costs for companies.
The idea was that low interest rates would induce them to borrow money to make capital investments and hire workers.
Unfortunately there was an unintended consequence – many publicly traded companies have been using cheap cash to buy back their own stock.
That, of course, reduces the number of shares outstanding… which in turn raises their share prices.
The bottom line is all those buybacks have artificially inflated many U.S. stocks.
There’s another consequence to the Fed’s low interest rate policy.
It’s forced anyone in search of yield to turn to the stock market.
As a result, it’s made the market even more inflated.
So not only do low interest rates screw savers out of yield…
They screw retail investors by making stocks more expensive than they should be.
So what’s a retiree… or soon-to-be retiree… or everyday retail investor to do in the face of artificially low interest rates that are likely to be around for some time?
Three things come to mind
1. Seek out dividend-paying stocks with a solid history of increasing their dividends. You’ll have to do some homework here, as a company offering dividends with high yields is no bargain if the stock itself is grossly overvalued.
The usual rules of due diligence apply here – vet the management team, confirm that the company has sound financials, and put some research into the sector – what kind of trends or events are happening that could affect it positively or negatively in the future?
2. Buy physical gold and silver. Sooner or later, exploding government debt is going to cause serious inflation. Owning gold and silver will help protect you against it, as it has for thousands of years.
3. Take a small part of your portfolio and invest it in sectors poised for strength. Right now these include gold and silver miners, cannabis companies and companies involved in health care.
Mining companies are especially attractive right now, as many will skyrocket higher as the bull market in precious metals gathers steam.
Here at Dear Retail, we keep an eye on the hottest sectors – and under-the-radar stocks within those sectors.
It’s our mission to keep you informed about these kinds of budding opportunities so you can profit from them.
So make sure you whitelist our email address – we’d hate for you to miss out on any breaking stock market news.
That’s it for now.
Thanks for reading!
Yours for financial success,
Contributing Editor, Dear Retail
Are You Ready For The Next Market Move?
Comments are closed.