This week is National Save for Retirement Week and, lo and behold, it just got a little harder to do just that.
The national average of interest on savings accounts is a pathetic 0.08 percent rate, according to Bankrate.com. That rate amounts to essentially nothing before or after bank fees.
How could it be that after five years of exceptional accommodation from the Federal Reserve, responsible savers are still getting screwed?
DYI Comment: Simple...The major central banks of the world have committed themselves to financial repression.
Financial repression is a term used to describe measures sometimes used by governments to boost their coffers and/or reduce debt. These measures include the deliberate attempt to hold down interest rates to below inflation, representing a tax on savers and a transfer of benefits from lenders to borrowers.
Since 2008, Americans who have worked hard and put money aside for a rainy day or retirement have been punished.
But now they should become downright disenfranchised, and with good reason.
DYI Continues: Disenfranchised....Absolutely especially those who purchase CD's (time deposits) at their local bank. Here is an example from a well known credit union (rates subject to change without notice, example only).
Pentagon Federal Credit Union
| Term | Dividend Rate | APY |
|---|
| 6 Month | 0.300% | 0.30%** |
| 1-Year | 1.200% | 1.21% |
| 2-Year | 1.300% | 1.31% |
| 3-Year | 1.350% | 1.36% |
| 4-Year | 1.400% | 1.41% |
| 5-Year | 2.100% | 2.12% |
| 7-Year | 2.300% | 2.32% |
-
DYI....The Fed's sub atomic low interest rates have not only killed off the saver but for those who have thrown in the towel with basic savings and have joined the yield seeking stock market crowd will be in for a rude awaking when this over valued, over bullish market heads south. Those knowing this are speculating in hope of getting out before too much damage is done to their returns. Those UNKNOWINGLY (God help them) who are forced to seek higher yields will feel totally screwed when the losses pile up wiping out years of interest or dividend payments due to a decline in principal.
Estimated 10yr return on Stocks
Using 5.4% as the historical growth rate of dividends and 4.0% as the ending yield.
Starting Yield*---------return**
1.0%-----------------------(-5.7%)
1.5%-----------------------(-1.7%)
2.0%------------------------1.3% You are Here!
2.5%------------------------3.8%
3.0%------------------------5.9%
3.5%------------------------7.8%
4.0%------------------------9.4%
4.5%-----------------------10.9%
5.0%-----------------------12.3%
5.5%-----------------------13.6%
6.0%-----------------------14.8%
6.5%-----------------------15.9%
7.0%-----------------------17.0%
7.5%-----------------------18.0%
8.0%-----------------------19.0%
*Starting dividend yield of the S&P500-**10yr estimated average annual rate of return.
DYI's estimated return is for monies invested today (S&P 500 index fund, a lessor return for a managed fund) go to sleep like Rip Van Winkle, wake up 10 years later your return will be close to that estimate. Of course if you are awake during those 10 years you are in for one heck of a roller coaster ride. Definitely one bear market and a lessor chance of a second draw down within that 10 year window of time is historically correct especially when starting out at high valuations.
The Fed’s own forecast says that a 4 percent Fed funds rate, which is the long-term average, won’t arrive until 2022. Bernanke believes it will be even longer than that.
So, don’t expect your bank to offer you any more than a mere pittance for your savings deposits anytime soon, even if it is National Save for Retirement Week.
DYI.....Unfortunately financial repression will be with us during the 2020's as costs for Social Security and Medicare ramp up as Boomer's retire in mass pushing the Fed's to monetize(money printing) a portion of those costs. The 2020's will be be known as the roaring 20's as unemployment recedes to a labor shortage due to the Boomer's exiting the work force but still consuming albeit at a lesser rate. Look for taxes to increase across the board as well with a the possibility of a consumption tax to pay the Fed's bills and to dampen inflation.
Currently today disinflation/deflation reigns supreme for at least the next 3 to 5 years and continued sub atomic low interest rates hammering the basic saver retiree into more frequent draw downs of principal to maintain a middle class lifestyle.
DYI's two portfolio's remain the same in a very defensive posture with a high level of cash. This over blown, over valued, and over speculated market will end in trail of tears, only when is the big question; especially with a central bank determined to levitate stock and bond prices. In the end value will win out with lower prices as the market regress' back to the mean.
AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 09/1/14
Active Allocation Bands (excluding cash) 0% to 60%
78% - Cash -Short Term Bond Index - VBIRX
15% -Gold- Precious Metals & Mining - VGPMX
7% -Lt. Bonds- Long Term Bond Index - VBLTX
0% -Stocks- Total Stock Market Index - VTSAX
0%-REIT's- REIT Index Fund - VGSLX
[See Disclaimer]
10-1-14
Maximum Aggressive Portfolio
(Super Max)
68% Cash - Hussman Strategic Total Return Fund - HSTRX
15% Gold - Tocqueville Gold Fund - TGDLX
7% Lt. Bonds - Zero Coupon 2025 Fund - BTTRX
10% Stocks - Federated Prudent Bear Fund - BEARX
0% REIT'S - REIT Index Fund - VGSLX
Disclaimer
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TILL NEXT TIME....
DYI
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