Posted by: coastcontact | January 25, 2013

Some Investments are Appropriate

Why are you relying in savings account interest?  Some banks are paying .05% APY on certificates of deposit.  I saw an ad this morning trumpeting 0.9% APY.  That is an unacceptable rate of return.

As we start the new year we are all looking at our savings and the earnings those savings provided.  Commentaries on financial networks like CNBC and in the financial sections of newspapers all say that most of us have put our money in low interest earning savings accounts at banks.  The reason is obvious.  We fear losing those hard gained savings.

Businessweek December 24-Janauary 6 edition cover story Titled “Get Rich Slow” points out that at today’s bank interest rates it would take 1,387 years to double your money.  Yes, the Federal Reserve is trying to encourage you to invest elsewhere.  Honestly there are many investments that pay more than FDIC insured savings accounts.  Some are just as safe as a savings account.  My favorite is Ginnie Mae Bonds that are “providing a guaranty backed by the full faith and credit of the United States” These bonds currently pay an interest rate of 2.68%.  They have earned higher interest rates in past years.  According to Morningstar, if you had invested $10,000 in January 2003 and had all interest re-invested in GNMA bonds, the current value would be $16,398.

There are other somewhat more risky investments but those risks are minimal.  Consider Procter and Gamble the world’s largest consumer goods company, whose products like Tide detergent and Gillette razors are in 98 percent of U.S. households.  Other products of theirs are Crest Toothpaste, Pantene Shampoo, Duracell, and Prilosec OTC.  That is not the complete list that encompasses at least 32 items.  The share price has varied over the decade but it has been a reliable dividend payer that now yields 3.19%.  As one lady told me, “I do not care what the share price is as long as I receive my dividends”.  She lives in an expensive independent living facility and draws her income to pay the bill from the dividends.

http://finance.yahoo.com/echarts?s=%5Egspc#symbol=^gspc;range=3m;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

The S&P 500 was at 1257.60 on January 1, 2012.  Today the value is 1502.96.  That is a 19.5% increase in value.  There is no guarantee this growth will continue.  Is this a bubble?  Perhaps! 

Can you afford to be a non-participant?  If the market drops 10% just sell and you just might have more money than you do today.

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Responses

  1. Good post and really made me look at investing in a different light.


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