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2.5% Treasury yields make me angry

It's completely unfair that investors who played by the rules and saved money for retirement are now suffering under the burden of incredibly low interest rates.

And why are fixed-income rates so low? Because of the irresponsible behaviors of many during the financial crisis, the Federal Reserve deemed it necessary to take unprecedented action and pump liquidity into the financial system. That resulted in low rates on fixed-income assets — and that has had a significant impact on seniors.




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Imagine you're a retiree saving money, looking forward to one day pulling an income to live the life you hope for. But suddenly, because of defaulted home loans and corrupt banks, now you're in a situation where the interest on your investments are laughable and wholly unrealistic to support your lifestyle. Many retirees find themselves in exactly this situation and compelled to take actions they would've never have considered under normal circumstances.

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What was once a strategy focused on Treasurys, certificates of deposit, and long-term conservative bonds now must morph into other asset strategies as yields on 10-year Treasury assets barely keep pace with inflation.

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As wealth managers, we see older investors completely perplexed on how to invest their portfolio to provide for the lifestyle they had hoped for. The asset alternatives are limited — particularly given current volatility. Still, there are choices that can help investors navigate this incredibly difficult environment. They include:

  • Investing in short to intermediate corporate fixed-income assets. Why: They are subject to less market volatility if interest rates rise.
  • Investing in lower grade junk-bond assets. Why: To increase yields.
  • Settling for 2 percent to 3 percent on higher quality fixed income and monitoring interest rates carefully. Why: With the idea of transitioning to higher-yielding positions when rates move upward.
  • Investing in real estate investment trusts. Why: Assuming that capital fluctuation will follow when interest rates rise.
  • Investing in dividend-paying equity assets subject to market fluctuations. Why: To increase yields.
  • Getting a reverse mortgage. Why: To pull income and principal while remaining in one's home during life.
  • Buying annuities. Why: Exchanging lump-sum assets for higher income streams.

The choice of which combination of these alternatives is best for each investor is completely dependent on circumstances. This is reality: The once hoped-for simple investment strategy of buying higher-yielding fixed-income positions just isn't available today without significant interest-rate risk. Today, choices have to be made carefully and with a full recognition of one's appetite for volatility.

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It would be nice to hear someone — anyone — at the Federal Reserve or US government say that they know the current state of affairs is wholly unfair to retirees. But that's simply a wish. I doubt it will ever occur.

Commentary by Michael A. Yoshikami, the CEO and founder of Destination Wealth Management in Walnut Creek, California. He is also a CNBC contributor.

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