Alternative Investments (for a low rate environment)Guy Conger
The Federal Reserve’s policy of keeping interest rates low and purchasing trillions of dollars in securities is pushing investors further into the danger zone.
This unconventional approach is good for big banks, governments and borrowers, but it is very bad for savers.
Near-zero interest rates have created incentives for the world’s biggest banks to borrow from the Fed — as well as the developed world’s other central banks — and allocate the money to their proprietary trading desks to engage in risky leveraged financial-market speculation which, in turn, artificially props up the stock market.
On the other hand, near-zero interest rates punish prudent savers who are called upon to bail out the reckless. Everyone who thought their savings might provide a comfortable retirement has to come up with another plan with interest rates near zero.
For my clients I have relied on the energy sector (one of the few economic bright spots) and special investments like Trusts and MLP’s to replace the more traditional fixed income products like bonds that are currently being killed by Fed policies. One of my favorites is Sandridge Missisippian Trust II (SDR) a company engaged in the new technology of fracking to get oil and gas from shale rock. This stocks generates a ridiculous dividend yield of 22% at it’s current price. Sounds impossible I know but there are many Trusts and MPLs paying yields like SDR. They are able to do it because they are set up to return most of their profits to shareholders in return for favorable tax treatment.
The financial markets are full of alternative ways to generate income with rates likely to stay low for the near term it would be a good idea to learn more about them.