A year ago, the Federal Reserve increased interest rates for the first time since the Great Recession.
Yesterday, they increased interest rates for the second time by a quarter of a point to a target rate of 0.5% to 0.75%.
For investors seeking income, this is a blip of hope that traditional yield assets, such as saving accounts, bonds and CDs, will become a viable source of income.
Amid the turmoil in the public markets and the staggering macroeconomic environment, it should come as no surprise that the private markets are also struggling. In fact, there are some important links between private equity and the current economic environment. A closer look at PE reveals that the industry often serves as a leading indicator Read More
But, and I say this as a friend, don’t get your hopes up.
The Fed raising rates is just the start of what would need to happen in order for your savings account to pay you a decent rate of return … but we still have a long way to go.
The days of generating a safe and consistent yield between 5% and 10% are long gone when it comes to traditional assets — and President-elect Donald Trump’s pro-America agenda isn’t going to bring those glory days back.
But there is still hope … just not where you are used to looking. That’s because those traditional assets won’t yield a significant amount of income for years to come thanks to America’s debt addiction.
The Debt Is Too High
The plans Trump has proposed so far are almost all expected to lead to another surge in debt — spending on infrastructure, cutting taxes, increasing military spending, etc.
As long as our debt remains at ridiculous levels — currently $19.9 trillion — there’s only so high rates can go. And we are nearly at that level now.
Any meaningful move in interest rates means that the massive amount of U.S. debt becomes unmanageable and could literally bankrupt our government and our country.
It’s a hard addiction to break, especially since interest rates (and yields) have been in a downward spiral since the early ’80s.
Take a look at this chart of the U.S. 10-year Treasury note:
I don’t see this downward trend letting up anytime soon. In other words, traditional yields are not coming back to a meaningful level anytime soon.
But, as I mentioned, there is still hope for income seekers — alternative methods for generating a steady income.
Building on Traditional Income
No, I’m not talking about simply buying dividend-paying stocks. My favorite strategy stretches beyond this traditional income method, and it is one I use in my Pure Income premium service.
In Pure Income, I employ a little-utilized strategy with stock options that allows you to essentially name your price for a stock and get paid for doing so. It’s a win-win.
So, instead of going out today and buying strong dividend-paying stocks at the current price, we get to pick a price that is at a steep discount, and we get paid for making this agreement.
There are essentially two outcomes to this strategy: You walk away with a steady stream of income and never have to own a stock to do so, or you get to own a great company at a cheap price while getting paid for the effort.
If you want to learn more about this strategy, click here to watch a brief presentation.
Editor, Pure Income
Article by Sovereign Man