Here's a point that was made on CNBC when discussing the current interest rate environment -- and how this affects retired people and retirement plans.
With low interest rates -- the returns on capital have been pretty terrible... as the safer investments that used to be good for retirement accounts are paying crap rates of 2 and 3%... That's killing spending and income for a large segment of the population.
With HIGHER rates - comes better income... at the same risk level. What people have had to do is to raise their risk level to get the same income. This is why you can really only "expect" to get 4 or 5% because you have to trade off the income potential with the risk potential. This might seem easy to do but it's not. Once you have no more ability to generate income other than off your investments... you become a different investor. You do not want to lose capital! You don't have the ability to replace it if you do. That's why you take more risk when you're YOUNG... because you have many years to stage a comeback and you just might end up being a big winner if you've made good investments.
Personally I'm always hoping for raging inflation... I'd love to invest and make a 10% return in relative safety! That would double my income... WTF would be wrong with that?! But I'm not buying stuff where the inflation that comes with that, would hurt me. It kills everyone else - and especially those with businesses to run and overhead and rents etc.
WE WILL SEE RISING RATES... period - end of story. They're not going lower from here. What will kill EVERYONE is if they rise too quickly. If they just inch up and hold steady and then inch up a little more -- that's good because it means business is good - and people have time to adjust to the costs etc. So it's the RATE AT WHICH THEY RISE is what's important. That's what the FED is trying to control right now. We'll see if they can contain it.
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