1 Cent – 1 Measly Penny
By: Tim McPartland,
We all know the older, more conservative investors in this country have been totally ignored by the FED in their quest to juice the economy with QE and their ZIRP. We were personally reminded of the absolute screws that have been put to the income investor as we surveyed the end of month statement for a new Roth IRA we opened in early August.
Early in August we had maxed out the contributions to our retirement accounts for the year and decided since we did not have a Roth IRA we would go ahead and open a new account and make a small $2,000 initial deposit. We did not take the time to put the deposit to work and instead just let it sit in ‘cash’. We get our statement (electronic statement) a day or two ago and we were so rudely reminded how bad it must be for older investors with lots of cash–or near cash investments. Our balance now at the end of the month is $2000.01. Of course we really knew this would be the case and it doesn’t make too much difference to us, but if we were retired and were overweighted in ‘cash’ we would be pained tremendously. Can you imagine having $100,000 cash in a brokerage account and getting a dollar or two each month!
This is one reason we think the FED should raise rates–time to start charging real interest rates so that the little guy can start to get a normalized rate of return. We do not believe that lifting short rates will have any material affect on the economy and in fact is more likely to stimulate spending than the current ZIRP has done. The yield curve will flatten a little as short rates rise and long rates remain very low on a historical basis–but if anyone believes the most recent GDP releases there is no reason whatsoever to remain at emergency level interest rates.