On February 5, 2013 the Congressional Budget Office released their forecast and expectations for 2013 extending through 2023 here. Often times we are lulled into thinking the present is the norm, and will be here forever… Don’t bite!
Super Low Interest rates are starving savers
Everyone should hold bonds and generally as we grow older/wealthier, more bonds are a part of investment portfolios for risk control. To fight the great modern-day recession, which bottomed in March of 2009, interest rates of all sorts (Treasury, Mortgages and Corporates) have been lowered, and are also being artificially suppressed in order to help economic growth.
Low Rates Not Forever
A generally accepted fundamental approach to interest rates on the 10 year is the real GDP, currently about 4% (Inflation currently 2% plus nominal GDP, 2%.) Current rates on the 10 year are 1.72% a far cry from 4%. Short term rate returns have not been seen for several years…there are more Bigfoot sightings than short-term interest returns ….kidding…… But seriously…An even greater help for savers would be the rise of the money market/short-term rates as currently these rates are near zero. When will this happen?
Congressional Budget Office Rate Projection
We may all debate the accuracy, but if the attached chart below is correct, from the Congressional Budget Office’s report, now is certainly not the time to stretch for yields.
Stretch yield buyer beware, as this could happen earlier and stretching for yield today may cause great damage to your portfolio tomorrow, when relief may come automatically. It may be hard to digest these lower rates, but keeping the faith and staying patient is a much lower risk proposition.
Have a Great Day!
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