My mother-in-law sometimes gets riled up about the amount of interest she's getting on her fixed-income investments and her savings accounts.
"Skim milk," she says.
I still chuckle at the line, but like advisors and their clients everywhere, I also shake my head when it comes time to look at my own investments and savings accounts. I think back several decades to when my bank account balance was a small fraction of what it is now - but the monthly interest was, remarkably, about the same.
While stocks have rebounded ferociously from 2009 lows and Treasury bond prices have rallied mightily, too, many advisors and investors who are focused on yield are flummoxed. There won't be any obvious short-term relief, either, with the Fed pledging to keep interest rates historically low for at least another two years.
As Financial Planning senior editor Ann Marsh - author of this month's cover story, "Beyond Bonds," - tells me, "It's sobering to see how low interest rates, which are good for many sectors of the economy, are undermining the dreams of champion savers and retirees. Writing a story on fixed income is enough to make you long for the good old days when bonds were 'boring.' The Steady Eddie yields of yesteryear look downright sexy today. They've become the Holy Grail for many planners. "
But as Marsh's story illustrates, finding yield doesn't have to mean avoiding fixed income, just expanding beyond what was traditionally thought of as fixed income. Hank McLarty of Gratus Capital Management in Atlanta, who Marsh interviews for her story, says his years as a wirehouse bond trader are proving invaluable now - especially when it comes to sussing out the value in complex mortgage-backed securities, one of his specialties.
Other options planners should investigate for their clients include opportunistic bonds, sovereign debt denominated in foreign currencies, senior secured private debt, master limited partnerships, charitable trusts and insurance annuities.
One more idea: Urge clients to consider refinancing their mortgages, even if they did so recently. Some lenders that don't sell off their loans allow homeowners to modify their loans to a lower rate without requiring a full-scale refinancing. That way, if clients are only earning skim milk on some investments, at least they're paying skim milk, too.
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