A guaranteed return

Now that the Fed has kept interest rates in the 0.00 to 0.25% range for the past 17 months, people are really not sure what to do with their money. Chairman Bernanke has stated several times that the Fed will continue to keep rates low for the foreseeable future, and this is not expected to change until problems with European economies improve and we see an improvement in the US unemployment picture. So what are investors doing now? There are a few things I am currently noticing people do with their money. CD shoppers are continuing to move money from one bank to another, based on whoever has the best rates, however, people are starting to go a little longer with their maturities to get a better rate. Most people aren't going much more than two years out due to their continued belief that someday soon, the Fed will change course and raise rates. Of course, many experts don't believe rates will go up now until late 2011 or possibly even, sometime in 2012. This poses a problem for people needing income off their CD's. Many people are getting fed up with rates in the 1-2% range and are starting to look for other options. Fixed annuity rates aren't any better than CD's and with people being more focused on the short term, this doesn't bode well for annuities. While some might look to dividend paying stocks for income, the stock market volatility has scared a lot of people away from this option for fear of losing principle. More are now looking to bonds as the safer way to go for higher yield, but concerns of default risk and price movement when and if rates do suddenly rise, are still weighing on people's minds. However, for people who need higher income, rates in the 4-6% range sure sound a lot better than 1-2%, so taking on a little more risk could be warranted for some. Lifetime income riders on variable annuities offer some interesting choices for people who are looking for a way to take income from their portfolios without the fear of outliving your principal. Take the time to be educated on these options before you say no. One last trend I am seeing more of is this, people are deciding that since they can't make anything on their money, they can just spend it, or pay down their debt. While the first option could be shortsighted, the second is gaining popularity as people realize that paying off debt is basically the same as getting a guaranteed return on your money. If you pay off a credit card charging you 8-12% in annual finance charges, you are realizing an 8-12% guaranteed return on your money. I even have had two clients who recently withdrew money from their savings to pay off their mortgages! They realized that the peace of mind that comes with being debt free is worth it's weight in gold!