The stock market is getting a bad reputation these days. It waxes and wanes hour by hour depending on everything from who is elected president to the future of twinkies and cupcakes. Never mind that in the grand scheme of things, individual stock returns are really based on corporate earnings, and never mind that historically the stock market has performed exceptionally well. Emotions rule, and every national or world event, calamity, announcement, etc. seems to warrant a wave of sell-offs. People feel better when they put their money into something “safe” – be it a C.D., treasury bill, municipal bonds or gold.
So as a writer of many (not all) things retirement, I cringe a bit when I read about of retirees moving all of their equity investments into C.D.s paying less than 1 percent a year. But just when I thought I was being a wet blanket to bondholders, I read an analysis from the Manhattan Institute on the effect of quantitative easing on seniors’ incomes.
As the tables show, people age 65 and over rely on interest income more than any other age group. And a 1 percentage point reduction in interest rates annually makes a difference of thousands of dollars for the average senior.
When today’s near-retirees and baby boomers are confronted with the questions “What will you do about inflation?” and “What if you live to be 100?,” the bond market rally starts to fizzle. Perhaps the
era of investing wholly into government debt is coming to a close.