Wednesday, December 9, 2009

Did you ever play Hide and Seek as a child?

“Hide and Seek” is a game we played when we were children. Someone was “it” and had to stay at the base and count to 100 while the rest were to try and find a place to hide and not get tagged out. After the seeker finished his count to 100 he started to look for the rest of the players and his job was to tag them before they could safely return to base without being tagged and then they were safe. Depending upon how you played the game the first or last person tagged was “it” for the next game.

So you are asking yourself, how is Dan going to spin this childhood game into something related to investing? For about the last 40 years you could play "Hide and Seek" with your money. If you didn’t like the way the stock and bond markets were acting you could safely Hide your money in a money market account. You could stay hidden as long as you wanted to earn a modest return while you were seeking new investment opportunities.

Many people in or near retirement have been using money market mutual funds and CD’s to not only Hide money from risk but also these accounts have provided supplemental income which has made a real difference in the quality of life for people. Today these money market accounts are providing close to zero return, some you can’t put money in and others you can’t get money out.

US Government Money Market Funds are yielding, in many cases, zero percent return. This past week the government had an auction for $28 billion in 30-Day T-Bills which are typically found in money market mutual funds. The demand or cover ratio was 5.33 times and the yield was zero. The government borrowed $28 billion and is paying no interest to borrow the money.

If you bought some of these T-bills how are you going to pay your bills with no income from your investment? The willingness of people to Hide money from risk in money market accounts or T-Bills at no return tells me they are unwilling to Seek out alternative investments. In a recent seminar I asked the question why keep money at zero return? The answer someone offered was, “zero is better than loosing money in your investments.” Clearly there are millions of Americans who have chosen to play "Hide and Seek" with their money, but they have chosen to only play half the game. These modern day players have hidden their money but are not seeking alternatives.

I asked a person recently what would have to happen to make them move their money from money market mutual funds yielding zero? The answer was, “When interest rates rise.” I asked him if the Fed doesn’t mover interest rates till 2012, how will you pay your bills? He said “I don’t know, I hope the Fed starts raising rates in January 2010.” If the Fed keeps interest rates low till 2012 then many retirees will have to start liquidating assets to pay bills.

There are alternatives that can provide safe and predictable income but in order to find them you have to be will to play the rest of the game and Seek them out. If your Seeking alternatives why not contact me for some of your alternatives.

Dan Perkins

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