How to be practical during ultralow interest rates

Which would you prefer — a lower interest rate on your debt or a higher interest rate on your savings account? Can you have both?

The average recent dental school graduate has a debt of $292,159.00 today, according to the American Dental Education Association estimates. For veterinarians and optometrists, the debt burden is in the same league.

For people with these professionals’ earning capacity, there has never been a better time to be in useful debt regardless of what Shakespeare’s Polonius has to say:

Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

Hamlet Act 1, scene 3, 75–77

Useful debt? Dulls the edge of husbandry?

The number of established companies and private businesses which operate without borrowed money today, is much closer to 0% than it is to 5%. The current borrowing environment is the best that it ever has been. Borrowing costs are equal to or less than the rate of inflation. If borrowing is tax-deductible, given today’s rate of inflation, low as it is,  borrowing costs are actually at zero or less.

And husbandry? Established companies and private businesses are husbandry on steroids — working and thinking about the business 24/7!

But what if you are close to retirement or actually retired? The 6% plus interest on your savings which you remember from your youth, is a memory.

Today’s savings accounts can offer 1.05% interest but that will soon go below 1%. Further, lower interest rates will be with us for a long time. Younger people cannot save enough for a comfortable retirement. Retired people living off their savings face a serious longevity risk.

All of us must invest. Today, we can borrow for free. Let us use it to our advantage.

And the best place to invest?

We frequently refer to the Credit Suisse chart above showing that over more than a hundred years in the past, equities have been the best place to invest. Cherry-picked items from the other investments mentioned have done better. Cherry picked. All of us have invested in many of the other possibilities and enjoyed some of them, but as a primary retirement investing base, equities will likely remain the best.

Global equities?

For better, more predictable results, limit your investing to US-listed equities. From our answer to an April 4, 2018 question from one of our members:

“Even the safest investing is risky enough. By investing in foreign markets, we add sovereign risk, currency risk, regulatory risk, property rights risk and more. Historically, China and many other autocratic countries have shown total disregard for property rights.

“A chart, like a picture, is worth 1000 words. Look at the one below.”

The Monday Morning program recommends investing in the exchange-traded fund SPDR® S&P 500 ETF Trust (symbol SPY). Compared to  the other  exchange-traded funds (ETFs) which track the S&P 500, SPY is identical but more useful for members who might want to sell puts and calls for added income. It is the largest, most frequently traded ETF with a narrow bid/ask spread and the biggest number of expiry dates.

Some of our members with a higher risk tolerance, are borrowing to invest.

So, the answer to the question at the beginning of this post is no. It is not possible to have a low interest rate on your debt and a high interest rate on your savings account.

However, it is possible to enhance our savings by investing the Monday Morning way.

Low interest rates will be with us for a long time.


The Monday Morning Millionaire Program was designed to offer compressed investment convictions. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

With fewer than 700 words, members can read this post in a few minutes. Following and studying the links imbedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

 

 

Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me

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