Rosalind Evans
For years, lacklustre cash returns left aging baby boomers with little option but to veer toward riskier stock investments as they neared retirement. However, the Federal Reserve’s recent decision to hike its benchmark interest rate has begun to change the landscape. Cash-based investments are experiencing some of the best yields in over a decade.
As it stands, the average online savings account is yielding 4.39%, as per DepositAccounts.com data. The average one-year online certificate of deposit (CD) offers a yield of 5.10%, while one-year Treasury bills are at 5.46%.
Financial experts are taking note of this shift as they advise clients either already retired or nearing retirement. While many advisors are optimistic about the new earning potential of cash-based assets, they also emphasize the ongoing importance of equities in a balanced retirement portfolio.
Adam Reinert, Chief Investment Officer and COO at Marshall Financial Group mentioned, “Short-term investment options like money markets and CDs can have a role, but their yields can be volatile due to changing monetary policy. However, higher interest rates on mid-term debt now mean investors might not have to rely as heavily on stocks.”
Jordan Benold of Benold Financial Planning, who used to advise older clients to invest in riskier assets for better returns, recommends six-month Treasury bills because they offer the best returns with minimal risk. “Given the 5.5% returns on one of the safest assets, there’s no need to opt for riskier alternatives,” he said.
Certificates of deposit are particularly beneficial for those who are either near retirement or have already retired, according to Malcolm Ethridge, Executive Vice President at CIC Wealth. By investing in CDs, people can insulate themselves from potential economic downturns as they enter their golden years.
Holzberg Wealth Management has been progressively adjusting client portfolios to include CD ladders—multiple CDs with varied maturity dates. “If rates keep rising, we’ll reallocate to longer-term CDs for better yields,” said Marcus Holzberg, a certified financial planner at the firm.
However, equities remain a vital component of long-term investment strategy. Daniel J. Galli, founder and principal at Daniel J. Galli & Associates, explained that for actual buying power growth, investments have to earn more than what’s possible with cash alone, despite the accompanying volatility.
Jon Ulin, CEO of Ulin & Co. Wealth Management, added that interest rates will likely decline, making diversified portfolios critical for long-term growth.
Though cash assets offer stability, they are not without their long-term downsides. Nate Creviston of Capital Advisors Ltd. warned that a portfolio too heavily tilted towards fixed income could see its gains eroded by inflation.
The stock market also continues to perform well, making it essential for investors to balance the security offered by cash with the potential gains from equities. “In the end, maintaining a two- to five-year cash reserve while still staying invested in a diversified portfolio is probably the best route,” concluded Constantine Tsantes, a financial planner at Cetera Advisor Networks LLC.
As interest rates continue upward, there’s a newfound appeal in traditionally secure assets like cash, CDs, and Treasury bills, especially for those nearing retirement. Yet, financial experts agree that the key to a robust retirement portfolio still lies in a balanced approach. While these low-risk assets may promise stable, guaranteed returns, the potential for long-term growth and inflation hedging from equities cannot be ignored. Thus, a judicious blend of both—carefully tailored to individual needs and financial goals—appears to be the most prudent path forward.
