I love to watch my money grow. So since the people who control interest rates say my savings account won’t help that growth, I’m heading toward greener pastures. If you feel the same, you’re welcome to join me.
Economists and financial analysts believe that low interest rates will persuade many Americans to take more risk to boost their savings. Those experts are certainly right about me.
In September 2007, I was absolutely giddy as I applied for my ING Direct Orange Savings account, which was paying a robust 4.50% APY. I didn’t have a penny in stocks or bonds, which is typical for most college students.
Today, my savings account sits ugly at 0.80% APY. So I plan to devote a large portion of my discretionary income into a diversified investment portfolio — not a penny more in my savings account, which holds my “backup”funds.
Treading uncharted territory
Like everyone else with money in the stock market, I have lofty expectations for financial gains. But we’re stuck in a confusing economic environment that may trouble even the most prudent investors.
“Be fearful when others are greedy and greedy when others are fearful,” says billionaire investor Warren Buffett. Those are words that guide my investment decisions and many others.
Yet the current economic climate is difficult to gauge.
The Federal Reserve’s low interest rate policy indicates fear and caution. Meanwhile, the stock market is reaching pre-recession levels, when greed ran rampant on Wall Street. Furthermore, the ups and downs in consumer sentiment are giving off mixed signals.
To my misfortune, the situation has seemingly rendered Buffett’s wisdom inapplicable.
But, it shouldn’t set me back by much. I’m sticking to one of the basic principles of investing: asset allocation. At 80 percent stocks and 20 percent bonds, I plan to pump money into the portfolio while maintaining that asset allocation.
When stocks go up, buy bonds. When stocks tumble, buy more stocks. It’s called re-balancing.
For some, this may sound like highly technical financial jargon, but that confusion is good. It is exactly what drove me to learn more about investing and actually doing it.
In the right position
Taking this leap isn’t easy for many Americans. But I already have an emergency fund, no debt and low living expenses. So I am in a position to make such a commitment. You may not be.
But if you’ve had enough of the terrible savings rates and have some discretionary income to save, consider shifting that money into investments, preferably in tax-advantaged retirement accounts.
It may be a good move. It may not. But, the Fed’s decision to keep interest rates at historic lows until 2014 has convinced me to make the move.
Not to be a downer, but a little bird told me that one of the major online banks will cut its online savings rates soon (again). Other banks will likely follow suit.
At this point, that isn’t surprising news. It’s just more support for my decision, and possibly yours too.