Announcer:
Brought to you by NelsonCorp Wealth Management.
Brandy Auterson:
It’s now time for, 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you very much. Appreciate it.
Brandy Auterson:
Well you’ve recently discussed shifts in some of 2021 big themes such as, higher inflation and rising interest rates. What are you looking at right now to keep on top of these changes?
David Nelson:
Yeah, it’s been significant. I mean, we’re talking about decade type highs as far as inflation expectations and interest rates they’ve really backed up as far as… Backed up meaning that they went up pretty significantly. Last year if we look at it the 10-year government bond was that a half a percent, this year during the year, this is going to go back a few months now, we almost touched 2%, which is a huge increase as far as from where we were.
David Nelson:
So these are really important variables when we talk about people’s monies and the impact that it can have, and certainly the expectation as far as inflation has come down. I brought along a nice visual here. That would be the 10-year treasury yield. And what we see, and again this is just looking at essentially a 12-month period of time, interest rates on the left-hand side of the chart in red we’re up there a little bit. And now we’ve come down to we’re at roughly one and a quarter percent today.
David Nelson:
On the bottom I think is the more interesting one as far as that folks should be paying attention to. This is looking at what are called TIPS. These are an inflation adjusted bond and what we see there is that we’re hitting all time lows. Meaning the interest rate that you receive and you factor in inflation you’re actually negative, and your negative roughly one and a half percent. This is not something that people want to have and the negative one half percent is very key to individuals long-term success as far as trying to have positive returns.
Brandy Auterson:
Okay. So are low real yields a good thing, a bad thing, or doesn’t make a difference at all?
David Nelson:
Yeah. It’s going to depend on if you’re a borrower you’re digging as far as where we are right now, interest rates have come down significantly, mortgage rates look fantastic. But if you own CDs and you own bonds, it’s pretty slim pickings right now as far as the ability to generate cashflow from those to supplement your retirement.
Brandy Auterson:
So what investment decisions are impacted by these dynamics?
David Nelson:
I think the biggest thing is that individuals have been forced into investing their money instead of saving their money. And individuals need to be well aware as far as the risk between a government type bond and a corporate bond. A corporate bond obviously pays higher than a government bond but it comes with a lot more risks, so people need to be well aware of that as far as to their future ability to generate income.
Brandy Auterson:
All right. Well David, thanks for your time. Always great advice.