Jim Niedelman:
It’s time again for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Good to see you, David.
David Nelson:
Thank you, Jim, it’s good to see you too.
Jim Niedelman:
We spend a lot of time talking about interest rates. It’s a popular topic these days, and of all the topics in finance, this seems to be among the most important given all the direct and indirect effects of changes in interest rates, what thoughts about the rates can you share with the people who are watching right now?
David Nelson:
So, interest rates are just absolutely crucial. It’s probably the most important factor as far as where bond markets and where stock markets are going to go. It’s very significant. I brought along a chart I think that’ll visually show people as far as we’re going back to a 20, 30-year period of time that I guess I wanted to focus on, and this is illustrating as far as the Fed target rate, and what we see here is that the trajectory is moving down, and that translates and interest rates are steadily moving down. What I want people to focus on is the right-hand side. So, from 2015-16, the Feds start trying to increase interest rates, which is a normal event. When times are tough we lower interest rates. When times improve, we try to get interest rates back up and the Fed did, and then all of the sudden, things roll over again and we can see we’re back at zero.
David Nelson:
So, point being, we had a seven-year period where interest rates were essentially zero. That is extremely concerning and something that we don’t want to see, and that’s the number that we’re back to again at roughly 0%.
Jim Niedelman:
We know that low rates have a positive effect in some cases, and can be a problem in some others. What stands out to you the most right now?
David Nelson:
So, there’s a lot that’s been going on the last several months as I discussed last week, as far as on the program. The Fed’s been very busy as far as trying to keep the economy moving, politicians have also been on board as far as trying to stir things up. But the chart that I brought along, the second chart today is illustrating that interest rates as far as this is 30-year mortgages, that roughly a year ago were 5.5%. We’ve now broken 3%. It’s the first time ever, Jim, that we’ve broken through the 3% level on a 30-year mortgage. So this is just absolutely astounding as far as that something like this has taken place, and certainly this is good news for some of the individuals out there. Again, those individuals that are in the borrowing mode.
Jim Niedelman:
So, what should people watching right now be most concerned about given these dynamics you mentioned?
David Nelson:
So, I think the biggest thing is individuals that are savers are getting punished in this environment. I mean, when you look at CD rates and you look at money market rates, essentially, we’re so close to zero, we round it off to zero. So that is a real dilemma that people have, individuals that were savers yesterday find themselves with the dilemma today either to live on virtually no income from their money, or they’re going to have to understand that they need to take more risk. When they take more risk, they’re also jeopardizing and putting their lump sums at risk, and that is a real dilemma that people have and it’s an important issue that people work with individuals that will tell them the truth and help them down this path as far as making those tough decisions on how much risk they need to take in order to get the cash flow that they need.
Jim Niedelman:
David Nelson, thanks for bringing all of this to light. Great to see you again.
David Nelson:
You as well, Jim, thank you.
Jim Niedelman:
If you missed any of our discussion, we’ll have that available for you on OurQuadCities.com.