How much is your bank paying you on your savings account?
If you have a savings account at Bank of America, you’re likely getting paid $5 for every $10,000 you have deposited.
That’s 5 basis points or .05%.
Do you know how long it would take to double your money at a .05% rate of return?
Almost 1,400 years.
BofA’s savings account yield makes Schwab look generous with a .10% cash yield.
And Fidelity looks like an absolute saint, offering investors a yield of 1.5% on their core cash account.
Who do you have to thank for the paltry interest you are earning on your savings account?
The Fed is the Enemy of Compound Interest
BofA of course, but you can also thank the Federal Reserve. The Fed is the enemy of compound interest.
Ben Bernanke, Janet Yellen, and sadly even Jerome Powell have thrown savers to the wolves.
The Fed is ostensibly advising widows and orphans to throw some chips into the stock market to earn yield.
That’s a strategy that can work in moderation, but buying Apple, Amazon, Facebook, and Google (four of the top ten stocks in the S&P 500 index) is quite different than collecting interest on a savings account.
So What’s Your Play?
To harness the power of compound interest today, a portfolio of dividend-paying stocks and interest generating bonds looks like the best choice.
But caution, agility, and guerilla tactics are necessary to do this right. You have to grab yield where you can and do it without taking on too much risk.
For example, at our investment counsel firm, we were recently able to purchase securities with the backing of the full-faith-and-credit pledge of the U.S. government at yields of 0.30-0.50% above the yield on Treasury notes.
You too can find opportunities like that if your ideal retirement includes staring at a computer monitor for 8-10 hours per day. Okay, maybe you don’t have to spend the whole day looking, but you do have to invest time to make a proper investment decision.
If staying on top of the markets isn’t your idea of an enjoyable retirement or weekend hobby, a managed account is always a consideration.
If you have interest in a managed portfolio we would, of course, point you to Richard C. Young & Co., Ltd., Dick Young’s family-run investment counsel firm. You can fill out one of the contact forms below to get the process started.