Wes Moss: Take more risk to beat low interest rates

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Getting a decent yield these days is like trying to wring wine from a raisin. It ain’t happening. Money markets, CDs, and savings accounts are currently yielding returns in the zero to half-percent range. When you consider inflation, that’s actually a negative return. These “negative real yields” are the result of the Federal Reserve Board’s desire to keep interest rates close to zero in an effort to gin up economic activity. Don’t look for relief any time soon. The Fed has already announced its intention to maintain the current policy at least through 2014.

So which investment vehicle do you choose?

Many investors jumped into U.S. Treasuries in 2011 in search of security. But there’s not much yield to be found here anymore. Thanks again to the Fed’s current policy, it will be difficult for long-term, 30-year Treasuries to return much above 3 to 3.5 percent. So buying Treasuries today could lock you into negative real returns for the long term.

The only way to boost the “yield” from your portfolio is to take on additional risk by investing in “spread products” — bonds considered riskier than Treasuries and accordingly pay a higher yield. These include municipal, international and U.S. corporate bonds.

Municipal bonds, including those issued by the states, are currently paying yields well above Treasuries. Most states, including Georgia, are in much better fiscal shape than the federal government, so their bond holders get a higher yield for little added risk.

Emerging Market Debt is foreign to most U.S. investors (pun intended), but you really should look at this category. Investing in foreign government bonds requires careful research and prudence. But there are countries — Brazil, for example — where the economy is stable and growing, and the government has remarkably little debt compared to developed countries. Just watch out for currency exchange  – changes in the value of a foreign currency versus the U.S. dollar can have an impact on how much foreign bonds are worth when converted back into dollars.

Investment grade corporate bonds are currently paying an average yield of 4.25 percent, well above Treasuries. While investment grade corporate bonds have traditionally been viewed as riskier than a government bond, corporate balance sheets today are generally strong and our government’s balance sheet is in shambles.

What is your investing strategy? Are you happy with the yield you are getting?

– By Wes Moss, for Atlanta Bargain Hunter

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5 comments Add your comment

[...] From Atlanta Blogs News Source: http://blogs.ajc.com/atlanta-bargain-hunter/2012/05/07/wes-moss-take... ____________________________________________________ [...]

[...] Board’s desire to keep interest rates close to zero in an effort to gin up economic activity.Wes Moss: Take more risk to beat low interest rates – Atlanta Journal Constitution (blog) This entry was posted in Rates Of Currency. Bookmark the permalink. ← Greek Election [...]

Barner B. Jones

May 7th, 2012
10:38 am

Wes- What duration should we aim for in Munis, Investment-Grade and Foreign Bonds these days? Also, should investors hold off on putting money into TIPS, since they presently sport negative yields?

[...] have earmarked for bonds and use it to pay down debt, even low-interest mortgage debt.AJC.com: Wes Moss: Take more risk to beat low interest rates – The only way to boost the “yield” from your portfolio is to take on additional risk by [...]

mo cash

May 8th, 2012
5:30 pm

should I go with deep in the money calls or oil futures?