In light of interest rates dropping, I’m at a loss what to do. I have $400,000 in high-yield savings and I already have $1.5 million in the stock market. My home is paid off, and I have no debts. I have no interest in investing more money in the stock market, despite the recent “Trump bump.”
I could buy another piece of property, but I’m not really interested in being a landlord again. That is too much money to leave in the bank. It has always been a comfort to have a good amount of money in the bank, but is it the smartest thing? No.
Obviously some of it can be used as an emergency fund, but who needs that much of an emergency fund? Tell me your thoughts and suggestions on what direction to take. I’m retired, collecting Social Security and I do get an annuity payment every month.
Saver and Investor
Related: I’m 69 and have $10,000 in legal bills from my divorce. Is now the time to borrow from my IRA?
Your dilemma would be a luxury for many people.
As you are retired and, by most Americans’ standards, flush with cash, I agree that there’s no reason for you to invest more money in the stock market at your age. Locking in the best interest rate is your main task, and enjoying the fruits of your labor.
The 60/40 rule says you should keep 60% of your portfolio in stocks and 40% in bonds, but as you get older those percentages should change to reflect the amount of time you have to recover from a major correction in the markets.
If you’re 65, you should have approximately 35% of your portfolio in stocks; if you’re 75, you should have 25% in stocks, and so on. So you could still take a small percentage of that money and invest it in shares. You could end up very, very lucky, like this guy.
You have a choice between CDs and high-yield savings accounts (HYSA). CDs are investment vehicles with set interest rates for a period of time that attract people looking for a safe haven for their cash. High-yield savings accounts are more liquid, so you can take out your money more easily. Typically, withdrawals are limited to half a dozen per month.
With CDs, you are committing to tying up your cash for a set time period. While interest rates, which are based on the Federal Reserve’s benchmark rate, can change with high-yield savings accounts even after you deposit your money, when you buy a CD, the rate does not change and you can’t typically take your cash out without a penalty, which varies by financial institution. In November, CD rates are around 4.95%, but don’t expect those to last much longer.
If you’re concerned about short-term fluctuations, you could employ a dollar-cost-averaging strategy, where you divide the amount to be invested into equal size contributions and then invest them over a longer period of time.
“One of the biggest financial-market implications of Trump’s victory on Tuesday and a likely Republican trifecta — with his party winning control of the Senate and on the verge of reclaiming the House of Representatives — is that Treasury yields will likely need to keep rising,” writes MarketWatch markets reporter Vivien Lou Chen.
“This is due to a mix of expected policies, ranging from corporate tax cuts to a tougher immigration stance and trade tariffs, that market participants anticipate will stimulate U.S. economic growth, shrink the labor supply and potentially boost inflation risks,” she adds.
Some analysts say real-estate investment trusts are more attractive than bonds due to higher relative yields, noting that they provide both diversification and liquidity, which means you can access your cash more easily than with many other investments. You can read more about four REIT stocks that pass a strict quality screen here.
As for the “Trump rally”: Vanguard recently analyzed the performance of both U.S. and global stock markets between August 1971 and September 2024, a timespan during which there were 14 presidential elections, including the forthcoming election on Nov. 5.
Lukas Brandl-Cheng, investment strategy analyst at Vanguard, Europe, concluded that the impact of U.S. presidential elections on stock markets has historically been “minimal.” In other words, the economy, company earnings, inflation, interest rates and geopolitical factors matter.
Meanwhile, there is debate over the impact of many potential policies of president-elect Trump — particularly his proposed tariffs, which some economists say would impede growth while pushing up prices of imported goods thereby increasing inflation.
As economist Clive Walker writes in the Economics Observatory blog: “After an election, political uncertainty is likely to be replaced with policy uncertainty as the priorities of the newly installed government become apparent.” And markets tend to react negatively to the latter.
“Research using over 100 years of data finds that greater economic policy uncertainty increases risk and suppresses the returns on shares in companies and industries that are particularly sensitive to government spending or regulation,” he adds.
Interest rates started climbing in 2022. The highest CD rates have hovered around 5% earlier this year, but have been declining. As we’ve seen with many special offers that come with many restrictions, there is increased competition between financial institutions for CDs.
CDs allow you to access your cash easily enough without incurring penalties — as long as you abide by the terms. Try not to get distracted by banks or credit unions offering CDs at high rates. They are often offered as “loss leaders.”
In other words, they are special offers and only allow you to deposit a limited amount of money for a limited time. You generally have to be living in the state where these financial institutions are based, and they often have limited deposit amounts.
You’re in a strong position for a comfortable and, I hope, happy retirement. This perspective may help: Currently, just over 60% of Americans own stocks, according to Gallup, and 84% of that group belong to households that earn $100,000 a year or more.
And you’re right about always having an emergency fund in retirement. You could keep some of that in a HYSA and CD ladders, which allow you to buy one-, two-, three-, four- and five-year CDs, so that you have one maturing every year.
You’ve kept your eye on the ball, now enjoy kicking it around.
More columns from Quentin Fottrell:
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