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Life Insurance

Saving and investing in a low interest rate environment

2017-08-14

It's impossible to forget the financial crisis of 2007-2008. Large investment banks failed, the government had to swoop in and officially bail out financial institutions and other huge corporations, and Americans saw the value of their homes drop significantly. 

You may remember your stomach plummeting when you saw how all this activity affected your investment portfolio -- your 401(k)s and IRAs. It was hard for a lot of investors to imagine a time beyond the Great Recession, when they would one day feel comfortable putting their money into the stock market again.

This inevitable trepidation that just contributed to the economic downturn lead the government to make a lot of changes in economic policy. The U.S. Federal Reserve adopted an expansionary monetary policy to increase money supply and get the economy moving again. In effect, the Federal Reserve lowered interest rates to incentivize people to take out loans and start spending and investing money again.

While these policies got the economy swinging again, it didn't help people who opted to put their money in savings accounts. A low-interest rate environment with more feasible loans also means slower-growing savings accounts. 

A decade later, savers and investors face the same quandary: "where is the most advantageous place for me to put my hard-earned money so that I can enjoy my retirement?!"

Depending on your risk tolerance, you can invest in a potentially versatile stock market. You can also take advantage of low interest rates to refinance your home and use the cash-out to fund a different kind of investment. Or, you can accept the safe yet slow-value-growth of a bank account. Your saving and investing plan can combine a number of different strategies. Before you start actualizing plans and changing up your allocations, take these four basic strategies into consideration:

1. Plan. Map out your financial goals. What do you hope to accumulate, and by when? Your planned retirement date will affect your risk tolerance. And, speaking of risk tolerance, consider that in your plan. If the risk of the stock market will lead to heart palpitations and nightmares, then you need to implement a growth plan with certain guarantees.

2. Diversify. There's a reason that the old adage, "don't place all your eggs in one basket" has staying power. This will mean looking beyond savings account and certificates of deposit. Allocate your money between stocks, bonds, mutual funds, and more. Give your nest egg a chance to grow.

3. Consider other ways to make your money grow. Get creative. Liquid cash isn't the only way to have wealth. Analyze real estate, metals, and commodities as potential investments. Or, buy a permanent life insurance policy that grows in cash value. Some of these whole-life policies allow you to annuitize, too, in case you need cash in a pinch. Learn more about AAFMAA's Wealth Builder (aafmaa.com/wealthbuilder) policy, for example. There are ways to accumulate your money that your mind likely has never conceived. Explore all your options!

4. Seek professional advice. It's nearly impossible to be objective when it comes to your own money. So, even experienced professionals need advice.  Turn to a trusted financial advisor who can walk you through all possibilities, along with the pros and cons to each option. To ensure that the professional you work prioritizes your financial interests and goals, you must look exclusively for an advisor or investment manager who adheres to fiduciary standards. (Members of the military community need to look no further for this service. Active duty service members and honorably discharged veterans can get a complimentary portfolio review from a trusted professional through AAFMAA Wealth Management & Trust (wealth.aafmaa.com)).

This is a summary of an article written by COL Carlos Perez (USA, Ret.), AAFMAA's Assistant Secretary who joined the organization after 26 years of military service. For Carlos' words on the topic, visit: www.aafmaa.com/SavingandInvesting.