How You Can Save Your Retirement When the Fed Won’t

I am single-handedly trying to keep the print newspaper in business.

I read at least two papers every day, and on weekends I’ve been known to gust up to five.

Every day when I open the paper, I’m just a little bit surprised not to see scores of retirees protesting – if not rioting – at the Federal Reserve Building in Washington, DC.

You see, the Central Bank has kept interest rates at really low levels for a really long time.

That has made it nearly impossible for people who have saved all their life to earn enough interest to meaningfully supplement their social security and pension income.

But it can be done, and I can show you the way.

It Wasn’t Always Like This

When I started in finance and markets, an investor who had scrimped and saved to put together $20,000 could invest in treasuries of FDIC Guaranteed Certificates of Deposit and earn over $20,000 risk-free on their cash. If you were in a high tax bracket, you could buy a high-quality Municipal Bond and still get more than $16,000 tax-free.

That’s just not the case today.

The yield on the 20-year Treasury Bond is a whopping 2.4% so your $200K will generate less than $5000 a year and the muni bonds will throw off around $4000 as well.

That’s quite a pay cut.

Making things worse, you have pension plans defaulting left and right, and many of this nation’s 31 million pensioners are already having their monthly income cut by up to 90% and even more in some cases. Find out more here.

It feels like your choices are to work longer and save more, or live with less.

That’s not much of a reward for doing all of the right things, and trying to be self-reliant in your golden years.

Unfortunately, it doesn’t look like this will change anytime soon.

When the Fed tried to raise rates in December, the markets plunged, and the economy began to noticeably slow.

The tariff wars with China aren’t going to help the economy very much, either.

Topping it all off, last week the Fed indicated that they are probably going to lower rates again soon, but an economy that can’t handle 2.5% interest rates is a topic for another day.

Finding the Way Out

So now the concern is what on earth can you do so that your Caribbean Cruise doesn’t turn into a day trip to the local beach?

The first part of the answer is to avoid being a sucker for salespeople.

The insurance industry and Wall Street have ginned up all sorts of allegedly safe ways to produce income.

They do an excellent job of that, but unfortunately most of the revenue goes to the insurance company and brokerage firms.

Always ask for and read the prospectus for any super safe income product that you’re pitched. If you don’t understand it, throw it away along with the salesperson.

Dividend-paying blue-chip stocks might have been the answer a few years ago, but ten years into a bull market, they have a degree of risk most inexperienced investors won’t be comfortable taking with their hard-earned retirement money.

When we see a substantial drop in the stock market, this will be a valid strategy once again, but for now, let’s keep it on the back burner.

Junk Bonds are also a hard no right now.

Just to set the record straight, I love junk bonds, and have done very well for myself and readers with junk bonds, and junk bond closed-end funds, but you have to buy them when no one else wants them.

Right now, junk yields less than 6% and everyone wants them, so it’s also a pass.

There will be a time to buy junk, and you can count on me to be there blowing the trumpet when that time finally comes.

Shelter in the Storm

Real Estate Investment Trusts (REITs) are a solid choice right now.

Focus on those that own property and trade below their asset value, and you should be just fine. As a bonus REITs tend to increase their dividend over time so you should get a rise all most every year.

Right now, hotel owner Apple Hospitality REIT, Inc. (NYSE:APLE) is yielding 7.5%, and trading at a discount to what my calculations tell me it’s worth.

So over the next several years, you should see the value of your investment grow, in addition to the monthly cash you collect.

Apple owns 234 hotels with more than 30,000 rooms across the United States.

They tend to focus more on upscale hotels that do better than the rest of the market during an economic slowdown giving you some protection for a weakening economy.

Global Medical REIT, Inc. (NYSE:GMRE) also trades for less than my estimate of intrinsic value and yields over 7%. They own medical building, clinics, labs, and other health care facilities that are leased to financially solid tenants.

Most of the buildings are leased on a triple net basis, so the tenant is responsible for insurance, taxes, and maintenance, so the cost of ownership for the REIT is pretty low.

As the population continues to grow older and we still the trend towards outpatient procedures continues to grow demand for medical facilities will just go higher in the years ahead so your dividend should grow and the properties you own should steadily increase in value.

Don’t forget my favorite real estate holding, Colony Capital, Inc. (NYSE:CLNY), which has a fantastic collection of hospitality, industrial, and health care properties. In addition, they have substantial holdings of a commercial finance REIT, and NorthStar Europe which owns premium offices building across Europe.

This REIT has phenomenal upside as it is deeply undervalued and the dividend yield right now is over 8%.

There’s no doubt that investing for income is becoming harder every day, but a little common sense goes a long way.

Knowing what to avoid is just as important as knowing what to buy right now.

REITs should be a big part of your income plans, and these 3 are strong candidates for yield, as well as capital gains over the next several years.

To the Max,

Tim Melvin

One Response to “How You Can Save Your Retirement When the Fed Won’t”

  1. Terry Wallace

    I have noticed that when interest rates were higher, so was the inflation rate. So even with earning more with higher interest rates, it seem higher inflation rates would negate those earnings to some degree. Am I wrong in my thought process?

Leave a Comment

View this page online: