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Unchanged Federal Reserve

Income investors will continue to face ultra-low interest rates as the Federal Reserve Bank (The Fed) has recently announced they will leave overnight rates “unchanged” at 0.00% – 0.25%. That equates to near zero interest earned on overnight deposits for financial institutions.  Near zero interest made on your money market.  Near zero interest received on your Certificates of Deposit.  Barely more than zero interest collected on short term high quality fixed income.  It means, your “safe money” is earning next to nothing.  To kick you while you’re down, the Fed and the Treasury Department are manufacturing inflation (rising prices) by printing trillions of dollars in response to the economic impact of the COVID-19 pandemic.  That translates to mean the purchasing power of your idle cash or very low interest rate bonds are silently being eroded by inflationary forces beyond your control.

What are we suggesting investors consider in a zero-interest rate environment?

1: Maintain cash reserves of at least 3-6 months for household expenditures.

Zero interest earned or not, cash is essential.  Everyone needs adequate reserves for typical month-to-month expenses, anticipated one-off expenses, and unexpected obligations that may arise.  A good rule of thumb is to keep somewhere between three and six months’ worth of household expense in cash equivalent deposits, even if that means you aren’t earning anything on it.

2: Build layers of liquidity in high quality short-term fixed income.

For future projects, or larger unexpected events such as job loss or medical event, the next wall of defense in your master plan should be high quality mix of short-term fixed income investments.  These instruments typically pay an ongoing interest income with a higher yield than cash but do come with varying degrees of credit risk and principal fluctuation, so make sure you talk to your financial advisor to determine what is best for you.

3: Avoid the temptation to reach for high yield.

High yield often means poor credit quality and risk of greater principal fluctuation.  With rates near zero, many investors are tempted to select investments with higher income yields, but buyer beware.  That higher yield near always means a higher risk to the underlying safety of your money.  Do your research to understand the downside risks of higher yield bonds before you make a move.  Better yet, contact StrongBox Wealth to learn all about your fixed income options. 

4: Consider alternative income sources.

Stocks, real estate, structured products, annuities, and alternative investments may have a place in a well-diversified income portfolio.  A total return strategy focused on distributing gains in addition to cash flow from income investments may be a viable long-term strategy to consider as well. The key is to ensure the prescription is finely tuned to your needs, objectives, risk tolerance, tax circumstance, estate plans and more. 

If this all sounds like a lot to absorb, StrongBox Wealth is prepared to talk through your questions and create a customized income strategy that makes sense for you.  

You can schedule an introductory call with one of our CERTIFIED FINANCIAL PLANNER® or Certified Private Wealth Advisor® professionals at 816-607-5410 or by sending an email inquiry to  

Takeaway:  Don’t let “unchanged” determine your future.  Instead, take charge of your investment plan with StrongBox Wealth as your guide.