Fed set to remain on pause as GDP data expected to show slowdown

I manage money for people - many of them retired. Retired people who were smart enough to plan ahead live off of bond interest and perhaps some stock dividends for income. They've been hurt by poor bond yields in recent years. I shudder to think how hard it will be if/when we start to see more and more companies cut dividends due to poor earnings outlooks.

And it will REALLY suck if things really get bad and the fed starts to actually put NEGATIVE rates into place like they're doing in Europe.

 

And older people often will not and cannot take big risks with their money. Someone with barely a million saved up who is used to living off $40-50k a year in retirement income is going to depend upon fixed income largely, if not entirely for their income needs.

They can put some money into high-dividend stocks if they're willing and able to take on more risk, but what happens when those companies cut dividends in tough times? Or when the market sells off hard like we saw in '08, and a 70 year old retiree with a conservative risk tolerance opens up their annual account statement and sees a loss of principal well into double digits? They may have a heart attack, or at least rightfully raise lots of hell and get their money manager in trouble if they made it understood to their money manager that they were not able to withstand such a fluctuation in principal. It can be a tricky situation in normal times, but it's really challenging when the fed refuses to normalize for many years on end.

With investment grade bonds, such a person knows there is a very high probability that their income stream will NOT be interrupted, and that they are "guaranteed" a return of principal at maturity. With stocks, there are no such guarantees, which is why older people (who are usually the people with the most money) with shorter time frames and lower risk tolerances in general keep far more of their $ in bonds rather than stocks.

Of course an older person with tens or hundreds of millions or more can have far more flexibility in their portfolios, but those people are in the minority.

Some who don't know better don't understand this, no matter how many times I try to explain it. Hindsight is always 20/20, and some are delusional enough to think that markets will go up indefinitely, that rates can stay at zero indefinitely, or even that they know everything and can predict the future. They should try having to explain to an older person with a limited amount of money why their account balance is half what it was last year. Not everyone has the goal of trying to make 50% or even 20% a year at any or all costs.

 

And of course you were 100% sure this would happen ahead of time?

Not forgetting anything, and they're not meaningless. Perhaps you're brilliant enough to somehow control inflation, but none of the rest of us are. So your pop quiz is meaningless.

You obviously don't manage money for a living, don't understand risk tolerance, don't realize how regulated the biz is, and are totally unfamiliar with individual variations in risk tolerances and time horizons; and income, liquidity, tax efficiency, estate planning, and capital preservation needs.

Older people who are very conservative, looking for steady income with minimal fluctuations in account values, and for whom capital preservation and tax efficiency are major concerns, and who often don't have huge amounts of money to blow cannot be 100%, or even 70%, or usually even 50% in stocks. Sometimes they need to be entirely in fixed income instruments if their situation calls for it. They often cannot be buying and selling in and out because this or that company cut its dividend because of a bad quarter or gives bad guidance or whatever.

Could you imagine having to tell an old lady - who barely has a million, that she wants to preserve to pass on to her spouse/kids/grandkids, and who needs to draw $40k a year from that mil each year to live on - that you lost half her money last year because the stocks you put her money in got hit hard for one reason or another? Believe me, you will eventually lose money, no matter how smart you think you are. Bull markets don't last forever, and any idiot can make money during a time like the last 7 years just by being long the Dow 30 or whatever. When things eventually normalize, we could all be in for a rough ride. I'd learn to be nimble.

You have no idea what you are talking about. I cannot invest the money of a very conservative middle class retiree like I've mentioned above the way I invest my own money - or the money of a young, aggressive millionaire who plans to keep working in his profession for another several decades and doesn't need investment income now... or even the money of another retired person who perhaps has many millions or more and who is more aggressive and doesn't need to use all of their nestegg to generate income.

You have no clue how I specifically invest money for each of my clients, and I would never disclose such specific info anyway. I'll just say again that such an older, conservative, middle class retiree's money is invested much more conservatively, and usually that means the vast majority is in investment grade bonds. This industry is heavily regulated, and there are guidelines which one needs to follow in order to stay out of trouble with regulators and to do right for clients as individuals.

A little knowledge can be a good thing, or it can be dangerous if you go way beyond your own level of expertise. Please just worry about your own money - you obviously don't understand my biz.