Protecting principal ought to be a primary goal of investors in retirement or those facing imminent retirement and doing short-term retirement planning. But finding safe, fixed-income investments that pay enough to just keep pace with inflation is difficult, especially for people with money in 401(k) plans, where they don't have a lot of access to sophisticated investments.
"It's very hard to find value in traditional U.S. fixed-income investments with yields at all-time lows," says Michael Mata, manager of the ING Global Bond Fund, who was among the presenters at a forum Tuesday on fixed-income investments, sponsored by Investment News.
His key advice: "Stay liquid because the outlook remains uncertain."
Interest rates won't stay this low forever, Mata promises, but he points out that Federal Reserve Chairman Ben Bernanke has committed to keeping them low at least through 2015, in large part because every 1 percent rise in Treasury rates drives up interest on the national debt.
Nevertheless, Mata believes that interest rates on 10-year U.S. Treasuries will soon creep well past 2 percent. "Rates can move up despite the Fed's best efforts. We believe that after we get past the current political noise, we'll get to 2.25 (percent) and in the second half of the year, we may get to 2.5 (percent) or 2.75 (percent)."
For some perspective, Mata looks backward to 1994, when unemployment was at 5.4 percent, down from 7.8 percent in 1992, and 10-year Treasuries averaged 5.75 percent. He doesn't wish for an identical repeat.
"As long as we can maintain 2 (percent) to 3 percent inflation, we think the rise in interest rates will be gradual. If rates shot up in a herky-jerky fashion, that would be very disruptive. ... I don't think rates are going to become unhinged like they did in 1994."
I guess that's good news because higher interest rates would mean higher inflation, and anybody living on a fixed income wants to avoid that.