Boomers aren't sticking with stocks because we want to
I had to grimace when Fidelity Investments recently chided 50-and-over investors for holding too much of their savings in stocks.
"Many older 401(k) account holders, including baby boomers close to retirement age, had stock allocations higher than those recommended for their age group," the news release said.
It went on to quote Jim MacDonald, Fidelity's president of Workplace Investing:
"One thing we learned from the last recession is that having too much stock, based on your target retirement age, in your retirement account can expose your savings to unnecessary risk … This is especially true among workers nearing retirement, who should be taking steps to protect what they've worked so hard to save."
I'm sure there are millions of boomers just like me who desperately want to reduce our exposure to stocks but have been stymied by the Federal Reserve.
There's simply no denying the fact the the Fed has spent the past 6½ years doing everything in its considerable power to make the safer investments retirees and near-retirees have traditionally turned to as unprofitable and unappealing as possible.
Certificates of deposit have always been one of the safest and smartest investments for retirees.
In the late '70s and early '80s, long before 401(k) plans or IRAs arrived on the scene, CDs were my first investments.
So don't worry, we boomers know all about them.
Back in February 2007, before irresponsible mortgage lending led the economy off the cliff and the Fed came charging to the rescue, the average return on 5-year CDs was 4.02% APY.
Historically speaking, that was probably a little on the low side as banks had already begun to trim longer-term savings rates.
I'd consider 4.5% to be a more reasonable average return.
But now the average return on 5-year CDs is 0.86% APY. (All of these numbers come from Bankrate's weekly survey of major banks and thrifts.)
That's not even enough to keep up with inflation at a time inflation is exceptionally low.
The current average return more or less matches last year's gain in the Consumer Price Index and is about half of what it added in 2013 and 2012.
Should we be shocked that the amount invested in CDs has fallen from a high of $1.46 trillion at the end of 2008 to $463 billion?
Or that the amount keeps falling every month?
So what about moving our money into the other safe haven for retirees — government and corporate bonds?
Well, the story is pretty much the same, with a uniquely nasty twist.
Interest rates on that debt is also at, or near, record lows.
That bastion of worldwide security, the 10-year Treasury note, has been paying right around 2% this year. Sometimes a little more. Sometimes a little less. But never anywhere near the 4% and 5% paid back in 2007.
And since yields on government and corporate debt are down, that means the price on those bonds are up – way up.
So what happens if the Fed finally reverses course and starts pushing short-term interest rates up to more "normal" levels this fall?
Everyone expects the price of those bonds to fall.
I have no idea how far, or how fast, those prices will drop.
But former Fed chairman Alan Greenspan certainly got my attention this past week when he warned that we have a "bond bubble" that will inevitably burst.
Then I see where bond fund managers are so afraid that falling prices will cause so many investors to flee that they're building up cash reserves to cope with the impending sell-off.
What part of that discussion is supposed to make me rush to rebalance stock-heavy retirement funds by piling into bonds?
Oh sure, Wall Street has the answer — interest rate-hedged exchange-traded funds.
These are funds heavily invested in super short-term debt that can be easily held to maturity and won't be penalized like funds holding long-term bonds with today's rock-bottom interest rates.
Then I go to Morningstar and see that the poster child for this strategy, iShares Floating Rate Bond, has a 12-month yield of 0.47%. And the fund is keeping nearly 30% of its holdings in cash.
So let's stop scolding boomers for keeping too much of our retirement savings in stocks.
We're not stupid or lazy. The Federal Reserve is blocking our transition to safer investments. It's that simple.