5 Stages of Grief and Low Interest Rates

By Harry Sit

I heard about the five stages of grief but I hadn’t really looked into it. When I read about it on Wikipedia, I thought the model fits very well how savers grieve about low interest rates.

Denial

"Rates have nowhere to go but up."

"The Fed only controls short term rates. Low short term rates are inflationary. Investors will demand higher long term rates."

Anger

"It’s not fair to penalize savers!"

"Seniors are robbed!"

"It’s financial repression!"

Bargaining

"I will do anything for higher yield."

"I will buy long term bonds for higher yield."

"I will buy junk bonds."

"I will buy dividend paying stocks."

"I will buy closed-end funds that pay high distributions from return of capital."

"I will use the debit card 15 times a month."

Depression

"Yield is low anywhere. I will just leave the money in a money market fund."

At a low yield of 0.05%, Vanguard’s Prime Money Market Fund still has $110 billion in it, about the same size as its flagship S&P 500 index fund.

Acceptance

What can you do? Buy some CDs, I bonds, maybe some munis, and carry on.

Are you a grieving saver? If so, which stage are you in?

2.2% Rewards Card $444 Bonus

Earn 2.2% toward travel on all purchases with Barclaycard Arrival World MasterCard. No caps and no foreign transaction fees. 40,000 bonus points if you make $1,000 or more in purchases in the first 90 days. $89 annual fee waived in the first year (40,000 bonus miles pay for 5 more years after that). Learn More

Software picked, likely related posts:

Posted on August 14, 2012 under Investing. Keywords: , .

Leave a comment

Comments

2 Comments on 5 Stages of Grief and Low Interest Rates

  1. gnosis on August 15, 2012
     

    … or pay down your highest interest rate debts. Doing so is like buying a bond with a guaranteed rate of return on your investment. You pay down your 6% loan, you’re giving yourself a guaranteed 6% return back on your cash. Where else are you gonna get to buy a guaranteed 6% bond these days?

  2. Monevator on August 17, 2012
     

    Awesome, wish I’d thought of this article idea.

    I’m loaded as usual with stocks, with a bias towards dividend paying ones in tax-advantaged accounts. :)

Tell me what you're thinking, but please don't spam. See comments moderation policy.