Low interest rates might be good for the economy and consequently for the Stock Market; however, it is no laughing matter to the millions of seniors that depend on fixed-income investments for their retirement income. With Treasury yields in the mid-2% range and lower (see Bloomberg.com), investors are finding that the low interest rates make it difficult to put their money to work. When interest rates are low, it is time to look elsewhere to invest.
Make Your Money Work Harder
Before we get into the investments, I want to cover some ideas to make sure you make the most of what you have now.
1. Get to Most From Your Bank Accounts
First, make sure all your money is working for you. Are you getting the highest interest rates for your checking, savings, and CD accounts? If not, shop around. You can start with these lists of high yield accounts:
2. Cut Your Expenses
You probably have been doing this already, but it doesn’t hurt to go through your budget with a fine-tooth comb. Here are more than 40 ideas to help you save money, lower your bills, and cut expenses.
Every dollar you saved is about $1.55 that you don’t have to earn. It is totally worth it!
3. Look for Income
Every dollar you earn outside of your investment accounts means your invested dollars can continue to grow and produce income for you.
4. Pay Down Your Debt
If you’re in the position to decide if you want to pay down your debt or if you want to invest the money, it might be a good time to start paying down your debt.
In general, you have to earn 1.4 times more through investing to make it worthwhile. If you have high-interest debts, paying them down is a legitimate “investment” strategy.
Three Investments for Low Interest Rate Environment
1. Invest in Dividend Paying Stocks
Investing in the stock market does carry more risks than fixed-income investing and FDIC backed savings and CD. However, some strategies can be used to minimize risks, such as investing only in stocks found on the list of dividend aristocrats. These are companies that have been consistently raising dividend payments annually for at least 25 consecutive years.
A properly built dividend income portfolio can return 3% to 5% just in dividends. Factor in annual dividend increases and compounding interest and your returns can skyrocket each year after.
Finally, dividend stocks can also provide capital gains in the event they are sold, making them a lower risk investment option.
2. Real Estate Investing
Real estate investing is a tried and true investment and a great source of income. There are many ways you can invest in real estate, check out our list of 8 ways to invest in real estate. There are bound to be 1-2 ways that work well for your situation.
There are multiple reasons why real estate is particularly attractive right now:
- Real estate value has not fully recovered from its peak and is still value in some areas
- Mortgage interest rates are close to an all-time low
- Both your home loan and your physical property act as an inflation hedge (and higher inflation is a likely future for our economy)
3. Peer Lending and Crowdfunding
These are possible options to generate a higher return on your investment, although, you should study it carefully before jumping in since each platform has its own unique characteristics.
Prosper and Lending Club are peer-to-peer lending platforms where you can lend your money to other people. You’re the bank. Each note is only $25, so you can invest $1,000 and lend money to 40 people. There are many grades of loan (from safest to riskiest). Prosper claims historical returns of 5.3% on average, and Lending Club claims 4% to 7% annualized returns.
For more information, check out Investing and Making Money with Lending Club Peer-to-Peer Lending.
Unfortunately, this is not a great time to earn money through your bank or fixed-income investments. If you are tired of earning 1-2% (or less) on your money, consider alternative investment options that can help increase your return.
- Putting your money to work in dividend-paying stocks can provide a steady income along with capital gains.
- Real estate investing, whether that means buying a REIT or a rental property, could be an excellent opportunity that offers higher returns.
- Peer lending offers much higher returns than a traditional investment, but it does come with additional risks.
What alternative investment options can you suggest to help grow your money?
Pinyo Bhulipongsanon is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.