YOUR MIND ON MONEY: Financial world defies conventional paradigms

2013-05-02T08:57:00Z 2013-05-02T18:12:26Z YOUR MIND ON MONEY: Financial world defies conventional paradigmsF. Marc Ruiz Times Business Columnist
May 02, 2013 8:57 am  • 

In August 2011, I refinanced my primary mortgage. It was right about the time S&P downgraded the credit rating of U.S. Treasury debt, which strangely enough caused interest rates to dive. I got a 4.12 percent rate. I was quite confident this would be the last mortgage I would ever have on this home.

Well, this week here we go again. After missing the trough in rates late last year, I locked a new rate this week at 3.5 percent. This time I’m sure it’s the last mortgage I will ever get here; rates just simply can’t go much lower than this, right?

Well I never say never anymore. 30 year mortgage rates in Japan have been solidly below 3 percent and occasionally below 2 percent.

The financial world continues to defy the conventional paradigms taken for granted. I remember a time when investors would watch then Fed Chairman Alan Greenspan going into Federal Reserve policy meetings and speculate about the thickness of his briefcase and what this meant to the interest rate decisions being determined inside. Would rates go up 0.25 percent, would they hold the line? These questions seem so trivial now (the briefcase part was silly then too).

Now we wait for guidance on how much money the Fed will continue to print. This week was Fed Board meeting week. At the post meeting, the Fed had to acknowledge continued slow growth being experienced in the U.S. economy, and is now indicating it could continue its money printing, bond buying program longer than previously thought.

And the Fed is not alone, the Japanese are printing yen and the Europeans are more subtly printing euros. Where does it all end? How does it all end?

The truth is, nobody knows. I do know, however, it will be nearly impossible for most Americans to achieve their retirement accumulation goals, or their goals of saving for their children’s college on sub-1 percent interest rates. I do know that a 401(k) or IRA invested at sub-1 percent interest rates does not provide a viable retirement income to those needing cash flow for retirement.

So now, more than ever before, Americans must make the best well informed decisions regarding finances on both the debt and asset sides of the ledger.

There is no doubt in order to receive a return on capital, American investors must now expose their capital to at least some level of investment risk; managing this risk has now become of the utmost importance.

The flip side is, if you owe money, as most of us do, you simply must take advantage of the low interest rate opportunities being created in this new topsy-turvey financial world.

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