Being a child of the ‘80’s, I’ve written about songs that influence us. The song, “Should I Stay or Should I Go”, is a song by the English punk rock band the Clash, from their album Combat Rock. It was written in 1981 and was the band’s only number-one single on the UK Singles Chart. It is now prominently used for a hotel chain to encourage travel.
This song beautifully sums up the questions surrounding interest rates, the Fed, the upcoming elections, and most importantly, what to do with investments in this “lower forever environment”? “To stay” is considered the safest as short term rates are likely to rise (ever so slightly) in the coming years. However, to continuously stay short is to also concede lower earning from assets at time when people are desperate for yield. That’s the opportunity cost for holding cash or near cash. And, if the Fed and other banks need to lower rates then it’s likely short rates will go down (possibly below 0 like I outlined in my last article.) “To go” is the riskier bet to get a better yield.
Incrementally, to achieve higher yields, you may need to look 5-7 years or more out on the yield curve. This not only gives you yield, but also interest rate risk as there could be the danger of rates rising, thus eroding your investment dollar. I won’t belabor my thoughts on the Fed, but they too sing along to this song as they contemplate raising rates in the latter part of 2016 and early 2017.
The elections are similar in the choice between establishment candidates and newcomers. As the late Gene Wilder said in “Willy Wonka and the Chocolate Factory”, ‘so many decisions, so little time.’ I recently came across the accompanying graph from an industry presentation by Sandler O’Neill, a Wall Street firm. The source is from Goldman Sachs and it shows 10 year treasury interest rates and significant events since 1790 (left side of graph) to today. It includes Depressions in 1790 and 1929, wars and historic events (like the Railroad strike of 1877). Notice those great years of the ‘70’s and ‘80’s are the abnormal ones in the cycle. The rates we are seeing today are more in line with normal than we think.
So, in terms of investments, I always encourage people to take risks where they can, but don’t take big risks in any one thing. This means, you not only need investments for current income, but also for appreciation. You’ll have to figure out what your income needs are and get those settled first before you invest longer. If you invest longer, don’t put it all in one basket. There’s an old saying, “If you put all your eggs in one basket, watch that basket.” This means be diversified, know what tolerance you can have for risk, and invest in good things (not sure fire things like 10% from that shady friend who has a friend like Bernie Madoff).
These are indeed interesting times we live in. Some say historic, some say chaotic, some say the new normal. I don’t know about any of that. I just know you have to answer the song’s classic question “Should I Stay or Should I Go?” It’s an everyday and everyway occurrence. If we can help you with any of that, please let us know. And now, back to the 80’s on 8 on Sirius/XM radio.
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