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Who Is A Saver?

Friday, March 9, 2012 - 9:30 PM
Just a few random musings. Some folks seem to equate being a "saver" with someone who plunks down extra cash in savings accounts or CDs. "Savers", thus defined, are "hurt" by the Fed's low interest rate regimen. I would suggest that the definition of "saver" is anyone who, in the accumulation phase before retirement, spends less than he or she earns. The monies thus "saved" are (by definition) "invested", whether in mattress money, savings accounts, CDs, bonds, stocks, or other alternative investments. Stated another way, you don't have to be a plunker into cash or cash-equivalents to be a saver.

Retiress can also be "savers". For example, if one withdraws less in retirement than the "sustainable withdrawal rate" (aka "safe withdrawal rate") or SWR, it might be argued that, by withdrawing less than what is necessary to sustain one to an albeit arbitrary death date, one is "saving" for one's heirs.

Thus, "savers" can save while earning (by spending less than they earn) or even when retired (by spending less than their SWR).

Exactly what "savers" choose to do with their "savings" is irrelevant to their status as "savers." Savers can be smart, or foolish. If a retiree spends less than his or her SWR (and is thus, a "saver") but chooses to "invest" in CDs yielding less than the rate of inflation, then it is at least arguable that the said retiree has made a choice to hedge risk. The risk thus hedged is worth more to the retiree than the risk foregone.

More to the point, the Fed is not punishing "savers". The Fed is not punishing anyone. If you choose to "save" (as broadly defined above), that is good. If you choose to hedge risk, that is fine as well. Hedging comes with a price. The price these days is the difference in the "risk premium". For example, my modest trading account is up year-to-date some 7%. My Vanguard account, over 10%. I accepted risk. I am now shedding same. Stated another way, I am selling into this rally.

I respectfully submit it is incorrect for anyone to suggest the Fed (or anyone else) is punishing "savers".

Risk is best taken on the equity side of a portfolio, with the "anchor to windward" on the bond or cash equivalent side.

Just my $.02.
4
BozoBozo137 posts since
Feb 14, 2011
Rep Points: 944
1. Saturday, March 10, 2012 - 8:50 AM
Bozo:  I respectfully submit that if "you" were purchasing CDs you would not be so quick to speak up for the FED!  They are responsible for "our" predicament since we don't want to join you in your risky investments.  If what they were doing was helping the economy, that would be one thing but it is not getting people to borrow or spend more and yet they continue their irrational actions against savers.  Are you sure you don't work for the Fed?

BTW, if you are referring to the Required Minimum Distributions from IRAs that we are required to take once 70 1/2 you are giving misinformation.  We don't have a choice about taking "less" for this.  The gov wants those taxes paid each year and if we take less than what we are supposed to take from their charts, we can face serious penalties.  You should make it clear to readers that you are not referring to their RMDs. 

BTW, if and when Ken ever decides to put up his Savers Petition, I guess we can count you out from signing it since you have no mercy on what the rest of us are suffering.  Enjoy your 7% while you can.  What goes up has to come down eventually so before long you may be hoping you had gone with CDs.
9
ApacheApache43 posts since
Dec 5, 2011
Rep Points: 565
2. Sunday, March 11, 2012 - 1:00 PM
Apache, despite what you might think, I am quite a fan of CDs. Being somewhat old-fashioned, I firmly subscribe to "age-in-bonds" as an appropriate asset allocation. I count CDs as "bonds" (or, more precisely, fixed-income), and well over 75% of my fixed-income is laddered in CDs. My point was simply to encourage folks to cast nets wider. While Fed-bashing might be all the rage, it accomplishes little, in my opinion.
3
BozoBozo137 posts since
Feb 14, 2011
Rep Points: 944
3. Sunday, March 11, 2012 - 6:35 PM
Fed-bashing is not really the main point of what many of us are trying to say. It is the zero interest rate policy and the multiple QE's that have dried up interest income for millions of people (negative real interest rates); driving down consumer spending and inhibiting an economic recovery; debasing the dollar, setting us up for serious inflation down the road and finally allowing the govt to continue to deficit spend in the trillions due to the Fed monetarizing the debt. These policies are driving up equity and commodity asset prices today and may have some fleeting positive effects on the economy, but may be putting us on a path where in a few years we will be dealing with some of the same problems Greece is dealing with today.

The problem wth the stock market is that it is difficult to know if the current run-up in prices is because of the underlying fundamentals of the economy and corportions or is it the massive intervention of the federal govt and the Fed. If it is the latter, then one must be very careful in how much you choose to allocate your savings to risk assets. Steve Romick of  FPA Crescent and other savvy mutual fund managers are warning us that the stock market is extremely risky and they see a possible correction in the not-to-distant future on par with what happened in 1999-2000 and 2008-2009. The buy and hold strategies many are told to pursue may be very hazardous to your health. This current optimism reminds me of all the real estate speculators and brokers in the early 2000's who advised me that real estate prices would never correct because of a myriad of reasons and told me that I was being unduly paranoid. In the final analysis, preservation of capital is of paramount importance, although I will attempt to increase the overall yield of my portfolio, but not if I have to risk a signficant percentage of my portfolio to accomplish a short term gain.
6
loulou553 posts since
Aug 3, 2010
Rep Points: 3,432
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