Ideas for Times Like These

There must be some value in all the things I’ve written about on this website.  After all, I live in the world you are trying to figure out.  My job is meant to help people plan for times like these.  Loyal readers have heard it a hundred times and clients/friends know exactly what I’m talking about.  Everyone puts focus on the stock market when interest rates are the far bigger story and I’ve tried to convince people to no avail.

For me it was obvious about a year ago when a real estate agent tried to talk me into buying an overpriced house.  He told me that rates would never be lower and could only go up so the timing was as good as it would get.  I laughed and said, “mark my words, rates are going lower and there will be a better time to buy.”  No matter who was right, it taught me a little bit about popular sentiment.

Interest rates have been shrinking since I started in this business.  My mentors at the time were giddy at the thought of a 30 year mortgage at 6%!  Now we may be going below 3% which is great for a borrower but you guys are all lenders.  At low rates you go short as a lender and long as a borrower.  It’s simple economics and I truly hope that fact hasn’t escaped you.

Who cares about what could have been?  I want to give you some ideas that help.  So if you are justifiably concerned about how recent events might affect retirement then I’d like to offer some thoughts on how to go about allocating assets.  Basically, you need to do something now!

Dividend stocks have always provided steady values and consistent cash flow.  And everyone else your age knows that.  Could that rush have increased prices to an unrealistic level?  What happens to those consistent dividends as the economy slowly grinds to a halt and profits shrink?  This one is probably going to be like the February unemployment numbers.

Bonds have added a little juice to most portfolios over the past year.  Lower rates lead to increased values but the opposite will happen when things turns around.  My guess is that anything over 2% for a high-grade corporate bond will be pretty good in the coming months with serious risk to value when the economy stabilizes.  That sounds like a great idea for a big chunk of protected retirement assets…

If you want a CD then buy it now.  The yield may not look that impressive but it is likely better than anything you’ll earn over the next year.  Don’t ever forget that the majority of the developed world has negative interest rates so stop being so picky.

Go to cash if you don’t know what else to do.  Don’t be greedy and spend too much time wishing you would have sold last month.  I’m sorry if I wasn’t more direct then, but some people just weren’t satisfied with an all-time high.  Whether you left something on the table or not, things will get worse before getting better.

Since this is not about annuities, I’m not going to tell you again that you can get a 0% floor with a double digit upside, more liquidity than bonds and safety that beats everything else.  If that’s not good enough, go ahead and stick with another assets based on a .70% ten-year treasury.

Last week during the first stage of the meltdown I went and spent a couple days with my dad on his farm.  He’s getting things ready for the upcoming season and one thing we needed to do was replace a tire on his ditcher.  If you don’t know what that is, it’s like a plow you pull behind a tractor to clear out irrigation ditches in the spring.  That damn tire had threads popping out everywhere and was completely worn through on the sidewall, with inner tube fully exposed but still holding air.  I don’t know why we replaced it because it still did the job after 40 years or so.

Most times all it takes is for one little piece to work the way it should so that everything else runs fine no matter what the conditions.  It’s never too late for a change so think about that as you wonder if your tire is feeling a little ragged right now.

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Last Updated on February 1, 2023 by Bryan Anderson