Interest rates on savings are near zero, real median income has been stagnant for a decade, and baby boomers are starting to retire. What should one do? Invest for income and income growth, with a portion allocated to commodities and precious metals.
Only 11% of the 77 million Baby Boomers said in the Associated Press-Life-GoesStrong.com poll that they are strongly convinced they will be able to live in comfort. Four times that number—44%--expressed little or no faith they’ll have enough money when their careers end.
With U.S. Treasury bond yields at historically low levels and money markets yielding almost nothing on savings, it’s a huge challenge. And with stock prices having doubled over the last two years and valuations based on actual earnings on the high side, what can an investor do?
There are still select, high-quality stocks that provide attractive dividend yields and the prospect for income growth. Abbott Labs (ABT) and Rogers Communciations (RCI) are examples. Over time, such investments will likely do much better than domestic fixed-income investments.
Investors also need to protect the purchasing power of their assets. Even though gold just hit a record high in nominal terms, gold and agricultural commodity prices seem likely to rise sharply in the years ahead. A substantial portion of one’s cash can be held in these non-income-producing areas, since cash yields almost nothing.
In addition, foreign investments (such as Rogers of Canada) or the Canadian dollar will likely maintain their value over time. In the meantime, I would try to be patient for the next major decline in stock prices. The entry price of an investment is crucial for success, and those with resources available to take advantage of depressed prices will be glad they had them.