Reaching for Yield

With the Fed buying $85 billion in government debt every month, effectively holding interest rates far below the rate of inflation, many seniors are struggling to make ends meet. It is no wonder the Dow has hit an all-time high. But for the stock market, where else can we expect to find any return?

The Fed can go on all it wants about how business is turning around. I'm not buying it one bit. Bring back the 6% CDs of yesteryear, and we will see just how much money seniors and baby boomers pull out of the market to reduce their risk. Frankly, I don't know one person in my real life who is euphoric about the market. The only enthusiasm I see or read comes from the television or the Internet.

Staying proactive amid the media hoopla is always a challenge. But it's a necessity for investors who actually want to profit. Every time a member of the Federal Reserve speaks, it's a clue waiting to be revealed.

In a recent Bloomberg article, the author shared some strong clues from Federal Reserve Vice Chairman Janet Yellen:

"I view the balance of risks as still calling for a highly accommodative monetary policy to support a stronger recovery and more-rapid growth in employment. … At this stage, there are some signs that investors are reaching for yield, but I do not now see pervasive evidence of trends such as rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would clearly threaten financial stability. … Ending the asset purchases before observing a substantial improvement in the labor market might also create expectations that the amount of accommodation provided would not be sufficient to sustain the improvement in the economy."

It doesn't take a Little Orphan Annie decoder ring to understand Yellen's message. The Fed is going to continue to clamp down on interest rates, forcing us to invest in the market. While it is at an all-time high, there are just "some signs" that investors are reaching for yield. Things aren't going to change anytime soon. Just keep pouring your savings into the market.

It's time to take off the rose-colored glasses and look at reality. Inflation is not 1.7%, despite what our last Social Security cost of living increase would have us believe. Yet, there is no point in bickering about the real number. Whether it's 5%, 6%, or 7%, our main concern is growing our portfolio ahead of inflation so our net worth doesn't decrease every year. We don't want to lose money by default even if we never take out a dime.

Social Security and the trickle of interest income available from traditionally safe investments won't pay the bills. Frankly, most folks can no longer afford to live off of interest, so we need to adjust our expectations of what retirement looks like.

Essentially, we're back to the same "needs versus wants" lesson most of us taught our children. Only now we have to re-teach it to ourselves. Letting go of unnecessary expenses is difficult, but ultimately quite freeing.

Also, we should avoid withdrawing money from our nest egg if it isn't at least earning enough to keep pace with inflation. If we tap into the principal to pay our bills, we are getting poorer. Make it a habit, and we'll soon be broke.

Personally, one of my biggest challenges is keeping my investment emotions under control while I reach for yield. Jumping into the hottest new technology stock is a good idea sometimes, but I never risk more than I can afford to lose. Safe investments with decent yields are out there. Tap into as much expert advice and high-quality research as you can.

I have a friend who calls himself a professional stock picker – something we all need to be. He reads several paid investment newsletters, and invests in the recommendations that best suit his needs. There is plenty of helpful information available, but we have to actively manage our own money. The stakes are too high not to.

The Fed has made it very clear what our challenge is: finding new sources of yield to provide us with income. But how do you find them and how do you get started?

With the team here at Casey Research, we’ve recently released a report outlining how to create a steady stream of monthly income to address this exact challenge facing us today. In it you’ll find out just how easy our strategy is to set up, which investments to hold (and which to avoid), and even their expected payout dates so you can budget accordingly. Click here to read this brief letter giving you all the details and explaining exactly how our plan works.