Sticker Shock: Fixed-Income Options in a Low-Interest-Rate World

Opiela, Nancy
January 2003
Journal of Financial Planning;Jan2003, Vol. 16 Issue 1, p54
Academic Journal
This article reveals the problems facing retirees in the United States who had invested in fixed-income securities and how financial planners could assist them to solve the problems. For those destined to get by on less, is to review the budget and cut spending where possible. The name of the game is loss prevention rather than return. Where to turn, depends on the client's goals and risk tolerance, according to Jack C. Harmon, CFO of Harmon Financial Advisors Inc. For a client who does not care about the value of the account, Harmon would suggest an immediate annuity as the most appropriate vehicle. Clients and planner alike are fielding calls proclaiming the virtues of short-term bond funds. Touting latest investment vehicle seems a trend that will be hopelessly repeated, no matter the fallout. Harmon worries that the most vulnerable clients will be those who develop a case of sticker shock when they go to renew a CD and the rate is two percent, not four or six percent. In counseling clients through this difficult time, it is important to note that the anxiety the clients may be feeling is unprecedented. A weak labor market, the threat of military action in Iraq, and a three-year market decline have combined to erode consumer confidence and darken their outlook for the future. Planners also have their ups and downs to deal with. In terms of positive, planners point to low inflation. Clients are not seeing the income they are used to seeing, but planners need to remember that inflation was 1.6 percent in 2004. It is also noted that low interest rates have sparked an interest in a part of the portfolio in which clients had little interest in the 1990s. INSET: Excess Cash: Mattress or Market?.


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