Implications of Negative Rates On Your Assets?
SUMMARY. Negative interest rates are finally here in the US as both the 1 month & 3 Month Treasury note rates fall below zero. This and the overall very low yielding bond market has implications on those seeking returns on relatively safe yielding asset such as bonds. When bond yields are negative it means if you own them you are paying the issuer a return NOT getting a return. This presents a challenge as investors seek safety while balancing returns to meet certain financial goals such as retirement.
INVESTMENT IMPACT. Before this event occurred we had shifted assets across our model portfolios to higher yielding or return assets such as preferred stock. Potential returns of short term or long term bonds maybe in doubt in the current environment tied to intervention from the Federal Reserve. As active managers of your money we constantly weigh the safety of bonds and their future returns against other asset classes. In this case we have chosen to under weight bonds even in our less aggressive income portfolios. One potential benefit is the better potential yields or returns. As an example, currently our model portfolios dividend yields range from 4% to as high near 5% or $5 for every $100 invested annually. These dividends maybe more volatile than bonds and can be reduced by companies which there in lies the risk. However, when judged against negative yields on certain bonds or those that provide low yields over longer periods of time the assets chosen may provide better returns as the economy recovers.
For more insights see our website and disclosures found there at BCA. As always contact us for further explanation of how these events can effect your finances.