Investing Amid Quantitative Easing
The massive buying of Treasury securities, now in its third incarnation, has done its work of keeping interest rates low throughout the economy. In turn, these "low, low" rates have done their job. Investment capital in search of higher returns is, albeit slowly, migrating into riskier assets.
As an aside, let me say that if the Fed's purpose in this is to lift the stock market and enjoy the salubrious glow of the "wealth effect" felt by individuals as the value of their holdings rise, that's a radical departure from historical policy. The Fed's job is to lift the economy, not the market. Let's hope the Fed has not lost sight of this.
Retirees and near-retirees that are swept up in the policies of the Fed should indeed follow the prevailing tide and are advised, albeit reluctantly, to find assets that will deliver higher levels of income. The reason for this is very simple: the traditional near- or post-retirement portfolio simply isn't going to cut it anymore. This portfolio consisted of the following elements: U.S. Treasury securities, U.S. bond funds, certificate of deposits, high-yielding money market mutual funds, index growth funds and fixed annuities.
Collectively, such a portfolio is hard pressed to deliver a return over 3.5%. With inflation and taxes, today's retiree or near retiree is working to hard just to stay in place. Here is how someone with an IRA or 401(k) and other retirement savings should consider positioning their investments.
Cash and near cash: FDIC bank accounts, gold
Fixed income: Foreign bonds, corporate bonds, bank loan funds, mortgage backed securities
Equities: dividend-paying stocks
Here are some, but clearly not all, funds that investors could consider to fill out the fixed-income portion of a portfolio rebalanced for quantitative easing.