Savers are struggling and likely will for years to come

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Conservative investors who try to save money by investing their money in government bonds don’t fare much better. The benchmark 10-year US Treasury yield hovers around 0.65%, which is near record lows.

Despite these low interest rates, Americans set aside $ 3.37 trillion in savings for that proverbial rainy day according to government figures. The personal savings rate in the United States represented a whopping 19% of disposable income in June. The savings rate is down from a peak of 33% in April, but it remains significantly higher than the savings rate of 7.1% at the same time a year ago.
Is there hope on the horizon for savers? May be. Inflation is finally showing signs of reintegrating into the economy. If consumer prices continue to rise, bond yields should – in theory – also rise.
But the Federal Reserve says it is not too concerned about inflation as the biggest worry is how the coronavirus pandemic could lead to another big drop in economic activity. The Fed has hinted strongly that it will likely keep rates close to zero for the foreseeable future.

The lack of a new round of stimulus from Congress is another reason the Fed must stand.

The central bank may need to adopt more lending programs for struggling consumers and businesses if Democrats and Republicans on Capitol Hill don’t soon come to an agreement with President Trump on another financial aid package.

So consumers who can afford it may need to continue investing in stocks – which have returned to record levels – for their retirement needs.

Mutual fund giant Fidelity recently reported that the average IRA balance and the average 401 (k) balance for its clients have each increased nearly 15% from the first quarter thanks to the market return.

Stocks can also be a better option for investors looking for income. The average dividend yield of the S&P 500 is 2.1%, well above the yields on treasury bills and bank savings rates.

But that doesn’t mean investors should ignore bonds (or even cash), either.

“We have to look through the noise and focus on keeping investments well balanced for the long term. This is even more important when interest rates are so low around the world,” said Rupert Rucker, head of income solutions at Schroders, in a previously published report. this month.

Large companies and leading investors are also accumulating liquidity. Apple (AAPL) has nearly $ 200 billion in cash on its balance sheet. Berkshire Hathaway (BRKB) has over $ 140 billion.

If Tim Cook and Warren Buffett keep their powder dry, you might want to consider doing that as well – despite the fact that it doesn’t generate much interest income.

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