Sweet & Low

Cry Uncle

Low interest rates may be great for homeowners, but they're less desirable for those seeking safe havens for their money. Rates on certificates of deposit are nothing to write home about, so many income-oriented investors are looking for other ideas. While some pundits recommend Treasury bonds with 30-year maturities, you might want to take a shorter-term view. To get the most out of fixed-income investing, consider bonds with maturities of no longer than seven to 10 years so you'll have the chance to get a high yield without tying up your money for an additional 20 years.

If you're OK with investing in securities that aren't backed by Uncle Sam, look into adjustable-rate securities. These can follow the yields of many types of securities, but most adjust based on the highest yield of the three-month, 10-year or 30-year Treasury bond. Rates remain in place for one quarter or more, and there are minimum and maximum yields to which the dividend can be reset. When interest rates rise, investing in this type of security means you aren't stuck with low rates.

Trying to hit a moving target may not be for you. If it's not, consider a laddered portfolio of securities with different maturities. Investors with $50,000, for example, could buy one issue and hope rates go their way, but investing this sum in five blocks of $10,000, with one coming due each year for five years or every other year for 10 years, might make more sense with today's low interest rates. As portions come due, they can be reinvested in securities that take advantage of current market conditions.

Don't limit your thinking to just one type of security, either. Mix and match with corporate and government bonds or preferred stock--whatever provides the best return for your comfort level.

If you know the rules of the game, today's low interest rates can be a great opportunity for investors, savers and spenders alike.

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This article was originally published in the June 1998 print edition of Entrepreneur with the headline: Sweet & Low.

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