Why Tolerate Low Current Yields

In Jan 2009 Social security payments are increasing by 5.8 % Remember that this is linked to partially compensate for the general inflation rate. It is not designed to increase the spending power of SS recipients. This means that the inflation rate is actually higher. When we look at the government Consumer Price Index data there are several possible numbers for the past
12 months they range from about 4.5-7.6%. Lets take a mid point at something like 6%

Now lets consider some current Yields on Traditional safe money Financial products
6 Month Treasury Bills Currently paying 1.44 %
30 year Treasury Bonds Currently paying 3.96%
10 year Treasury Bonds Currently paying 3.66%

This weeks Average Bank Cd yields
6 Month Bank CD---------Currently paying 2.17%
1 Year Bank CD ----------Currently paying 2.70%
5 Year Bank CD ----------Currently paying 3.46%

Investment in any one of these products means that you have less buying power than when you started at the beginning of the year.Even with the highest yield you will still have 2% less purchasing power after you hold the product for one year.

John Waggoner wites for USA Today . His article titled "Whats so great about Bonds? They Are not Stocks" appeared in todays paper. It is a nice overview of Bonds and how they work and why the are different from Stocks. He quotes numbers from Morningstar about this years performance averages. Short Term Bond Funds have lost 3.5%,Intermendiate Term bond Funds have lost 6.4%, and Long term Bond funds have lost 12.3% this year. Junk Bond are down an average of 22.8%.All of these numbers are quoted from Johns article. he also makes a point that when stocks do poorly bonds often do better.

The Ideal Safe Money Financial Alternative products Must do two things. They must protect your principal from risk and also has to have the chance to beat inflation!! Do any of the products listed in this article do both? There are other thing the Ideal Safer Money Financial Alternatives should do as well. They should have a minimum guaranteed rate of return. They should be able to participate in strong economic growth cycles. They should help insure potential lifetime income streams that you can not outlive.