Don’t Invest in Long-term Bonds or CDs at this Time
Long-term, fixed investment in bonds and CDs aren’t something we should consider investing in at this time, as the interest rates in America are going to remain depressed for some time as the Federal Reserve’s decision to keep them low in an attempt to help the economy recover will remain the practice.
That will be reinforced by the inflation numbers, which over the last year have risen by only 2.2 percent, while the Consumer Price Index was up only 0.9 percent, although that of course doesn’t include food or energy. Even so, that’s the lowest increase in 44 years for the CPI.
Add to that the bad economic news from Europe, with their sovereign debt crisis, and China with their own inflation challenges, and the possibility of the U.S. and other economies going backward is a real possibility, which will pressure the Federal Reserve to keep interest rates low, which as far as it relates to safe investing, should keep us in short-term investment vehicles, rather than long term, as eventually interest rates will rise, and we don’t want to get stuck with long-term rates which will under-perform inflation.
It’s not as if that’s not happening now concerning savings, because it is, it’s just that it’ll be much worse in the future if we lock ourselves into low-interest investments, as inflation will inevitably rise, and we’ll lose a lot more buying power if we lock in long.
There’s not much available out there, and we’re talking largely about building a fund to handle any type of difficult circumstance that may come along.
So for now, it’s far better to keep things short-term until we emerge out of the low-interest rate environment. Anything else will cause us to lose our buying power as the value of the U.S. dollar falls and inflation rises.
Tags: cds, saving strategies, Savings Tips
