Help a Reader #1

Nov 19, 2012 by

money puzzle piecePlease help me dispel the feelings of inadequacy I got when reading the note below from a reader. I don’t have a good answer for this couple. So I asked permission to publish their query and call on the considerable collective wisdom of those who visit Money Counselor for help.

My husband and I are frustrated by what to do with our savings. We’re fairly conservative with our money, and don’t intentionally take a lot of risk. My husband—though still actively engaged in a freelance career and earning a substantial income—is approaching age 80. I’m a full time professor at a major university and hope to retire within 10 years.

 

About 65% of our savings is in cash, by which I mean CDs, savings accounts, etc. We have a large batch of long-term CDs coming due soon, some with interest rates over 4%. As we look to roll these over, the very best rate we’ve seen on a 3-year CD is 1.4%! That’s a big hit on our investment income.

 

I know a lot of people in our position are investing in stocks with high dividend yields to make up the income lost due to these low rates on savings. I’m not sure we’re comfortable putting a bigger fraction of our savings into stocks. Should we be? We were really spooked by the Lehman bankruptcy and all the turmoil on Wall Street.

 

What are our options for earning more than 1.4% on our savings? Can you list these in order of riskiness? Do you think interest rates will begin rising soon? We hate to lock into the 1.4% rate for three years only to see rates begin rising in 2013. What about TIPs [Treasury Inflation-Protected securities]? One of our friends believes the US is headed for hyper-inflation, so he’s buying TIPs and gold. We think he’s nutty, but…

 

Thanks for your help.

What do you think folks? This is sure a common challenge these days with interest rates so low for so long. Most of me hates to see these people plow any of their safe CD money into risky equities, but you know I’m biased that way if you’ve been reading Money Counselor for long. Any suggestions for them to consider?

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