I promised when I discontinued writing my long-time newspaper column, that I would continue writing exclusive articles for our clients and friends. I want to share today an opportunity that has presented itself that I feel many will want to take advantage of.
For many years we lived with very low interest rates. During that time, I often wrote about the need for higher rates for two main reasons. First, borrowing money should hurt. When money is readily and cheaply available, it leads people to borrow too freely without putting proper thought into the risk. The current student loan issue is a good example where many easily borrowed tens of thousands of dollars to obtain degrees that in many cases did not have enough value in the marketplace to justify the debt. Had loans been more difficult and costly to obtain, perhaps some of those people would have given more thought before borrowing.
The other benefit of higher interest rates is that those who exercise discipline to save money should be rewarded for doing so. Having cash in reserve is beneficial to individuals and families and strengthens society as a whole. In order to encourage saving, savers should be rewarded with a reasonable interest rate. For many years that has not been the case and those who saved have almost been punished with low or non-existent interest rates. This created a disincentive to saving. Between the needs of borrowers and savers there needs to be a balance.
During the past year the federal reserve has been raising interest rates in an attempt to quell high inflation. In the process I have been pleased to see the above two issues resolving. Higher rates are requiring borrowers to think more thoroughly before borrowing money, which is a good thing. Higher rates are also making it possible for savers to obtain a fair return on the cash portion of their portfolios.
As of this writing the annualized interest rate on U.S. Government 90 and 180 day Treasury bills, has exceeded 5%. It’s been a long time since we have seen rates that high. This makes these guaranteed products* an excellent option for savers. The short duration of these bills also provides a tremendous amount of flexibility.
We are aware that many of our clients are holding significant funds in bank savings and money market accounts that are still paying very low interest rates. Don’t expect those institutions to call you up and remind you how little you are earning. If this is your situation please call us. We offer U.S. Treasuries to our clients and can help you decide if purchasing them fits your needs. Also, if you have friends or family that may be interested in this opportunity, please refer them to our office. As long as higher interest rates last, we want to take advantage of them and help you earn a reasonable return on that portion of your wealth that is being held in cash accounts.
We remain optimistic and committed to long-term investing in the equity markets but for that portion of your funds being held for emergency and shorter-term needs we feel these new Treasury rates can be quite appealing.
Dan Wyson, CFP® is author of “The Gold Egg” and “21 Financial Myths” and owner of Wyson Financial 375 E. Riverside Dr. St. George, UT 84790 – 435-986-9525 – Securities and Advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment advisor
*U.S. Treasury bills are guaranteed for the duration of the specific product. If liquidated early they may lose money so we only offer them to clients who intend to hold them to maturity. In this case it would be 3-6 months.